Which group should governmental policies target? Effects of incentive policy for remanufacturing industry

¹ School of Economics & Management, Shanghai Maritime University, Shanghai, P.R. China.
² School of Economics and Management, Tongji University, Shanghai, P.R. China
³ Navy Medical Center of PLA, The Second Military Medical University, Shanghai, P.R. China
⁴ College of Transport and Communications, Shanghai Maritime University, Shanghai, P.R. China

^* Corresponding author: earnestliu@126.com

Received: 24 June 2020
Accepted: 22 January 2021

Abstract

Although previous research ignores other subsidy groups, we conduct a comprehensive study. In our closed-loop supply chain model, the manufacturer can produce either new products or remanufactured products of end-of-life products recycled by independent recyclers. Our core objective is to explore the production and recycling strategies of the two products under different government subsidy plans and which groups the government subsidy plans should target. Considering the consumers’ discount perception and uncertainty of recycling quantity, we construct four game scenarios: (1) no subsidy (Scenario N); (2) subsidy for the manufacturer (Scenario M); (3) subsidy for the recycler (Scenario R); (4) subsidy for consumers (Scenario C). The results show that the corporate profits and social welfare under scenario C are higher than those under other scenarios. If the government adopts scenario C, enterprise profits and social welfare will always be higher, but the downside is that government expenditure will also be higher. If considering the limited government funds, the government can set a medium subsidy level. Scenario M will bring sub-optimal social welfare to the government. For scenario R, government subsidies stimulate the recycling of end-of-life products and help recyclers increase their profits, but from the manufacturer’s perspective, manufacturers may resist this scenario.