Extended Warranty and Retailing Strategies in CLSC Competition With (Re)manufacturing Manufacturer

Due to the economic advantages and global sustainability, the manufacturer promotes the (re)manufacturing process to reduce waste, energy consumption, and raw materials. Pricing plays a crucial part in the demand for both new and remanufactured (reman) products and their possible market stake cannibalization in (re)manufacturing management. This paper suggests a mathematical framework to determine the best manufacturing and pricing strategies for a Closed−Loop Supply Chain (CLSC) with a manufacturer (m) and a retailer (R) and only manufacturer participating in (re)manufacturing, using product returns. The pricing strategies between manufacturers and retailers are determined using the concept of game theory to assess the complexity of the real−world decision−making challenges in CLSC. Specifically, by applying the Stackelberg game theory, the CLSC structure is described as a two−phase mathematical model, which aims to determine the optimal pricing decisions that can lead to the common benefit of the CLSC members. Further, an extended warranty is offered by the manufacturer, and the retailer to their potential customers, and the optimal pricing extended warranty strategies are solved using the Karush−Kuhn−Tucker (KKT) conditions. It is imperative to emphasize the results related to pricing strategies, trade−in costs, and the significance of harmonizing the lengths of EW between manufacturers and retailers to augment profitability. These key findings hold significant implications for manufacturers operating in the current market and can help them develop effective pricing strategies, reducing costs, and maximizing profitability. The results conclude that the manufacturer's optimal profit is not affected by the entry of the retailer's extended warranty in the product market. Also, numerical studies investigate the extended warranty sensitivity of the manufacturer's and retailer's optimal strategies.