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The comparison between selling and leasing for new and remanufactured products with quality level in the electric vehicle industry

  • * Corresponding author: Tao Zhou

    * Corresponding author: Tao Zhou 

The first author is supported by National Natural Science Foundation of China under grants 71871076, 71521001, 71531008, 71690235

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  • Process uncertainty makes remanufacturing operations management sophisticated. To reduce the uncertainty of the timing, quality and quantity of product returns in remanufacturing, motivated by the selling and leasing of electric vehicle batteries, we consider a monopolist vendor who markets her products by adopting two models: (1) a single leasing model, and (2) a single selling model. We first investigate the firm's marketing model with remanufacturing and analyze the impact of the quality level of the returned products on the firm's marketing and remarketing models. Then we compare selling and leasing models. We first find that only when the quality level of returned sold products is relatively high will the vendor choose to remanufacture under the single selling model. Conversely, only when the quality level of returned leased products is relatively low will the vendor decide to remanufacture under the single leasing model. Secondly, we show that the space of remanufacturable quality level under the single selling model is bigger than the space under the single leasing model. Thirdly, selling is more profitable than leasing when the quality level of returned sold products is sufficiently high. These results are further demonstrated by a numerical study. Our study provides firms with guidance on how to optimally adopt remanufacturing and marketing strategies that take into account the quality level of the returned products.

    Mathematics Subject Classification: Primary: 90B60; Secondary: 91B16, 91B24.


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  • Figure 1.  Optimal quantity as a function of $ v_{ir} $, given that $ c $ and $ \gamma $

    Figure 2.  Optimal price as a function of $ v_{ir} $, given that $ c $ and $ \gamma $

    Figure 3.  Optimal profits as a function of $ v_{ir} $, given that $ c $ and $ \gamma $

    Figure 4.  Optimal quantity as a function of $ c $, given that $ v_{ij} $ and $ \gamma $

    Figure 5.  Optimal price as a function of $ c $, given that $ v_{ij} $ and $ \gamma $

    Figure 6.  Optimal profits as a function of $ c $, given that $ v_{ij} $ and $ \gamma $

    Table 1.  Some Key Literature on Remanufacturing and Marketing Strategies

    Marketing strategy
    Selling Leasing Combination of selling and Leasing
    Remanufacturing strategy Remanufacturing Product performance (durability, depreciation, quality, etc.) Atasu and Souza [5] Mont et al. [21]
    Robotis et al. [25]
    Steeneck and Sarin [30]
    Product returns (reverse logistics, acquisition policy, inventory, etc.) Guide et al. [14]
    Mutha et al. [23]
    Östlin et al. [24]
    Wang et al. [37]
    Aras et al. [3]
    Loon et al. [19]
    Yalabik et al. [39]
    No remanufacturing Product performance Agrawal et al. [2] Desai and Purohit [11]
    Product returns (secondary market or discarding) Waldman [36]
     | Show Table
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    Table 2.  Summary of Notation

    Symbol Definition
    $ \gamma $ A discount factor signifying the value of future cash flows
    $ v_{ij} $ The quality level for product $ j $ under decision $ i $
    $ U^{m}_{kij} $ The utility of a customer for product $ j $ of decision $ i $ in period $ k $ under market model $ m $
    $ c(v_{ij}) $ The marginal cost of product $ j $ of decision $ i $
    $ p^{m}_{kij} $ The one-period price for the product $ j $ of decision $ i $ in period $ k $ under market model $ m $
    $ q^{m}_{kij} $ The period $ k $ demand for product $ j $ of decision $ i $ under market model $ m $
    $ \pi^{m}_{k} $ The profits under market model $ m $ in period $ k $
    $ \pi^{m} $ The total profits under market model $ m $
     | Show Table
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    Table 3.  Optimal Solutions in Each Model

    Solutions of parties Model L Model S
    $ q^{m\ast}_{1i n} $ $ \frac{1-c}{2} $ $ \frac{1-c}{2}+\frac{\gamma(v_{sr}+c(1-v^{2}_{sr}))}{4} $
    $ q^{m\ast}_{2i n} $ $ \frac{1-v_{lr}-cv_{lr}-cv^{2}_{lr}}{2(1-v_{lr})} $ $ \frac{1-v_{sr}-cv^{2}_{sr}}{2(1-v_{sr})} $
    $ q^{m\ast}_{2i r} $ $ \frac{c(v^{2}_{lr}+2v_{lr}-1)}{2v_{lr}(1-v_{lr})} $ $ \frac{c(v^{2}_{sr}+v_{sr}-1)}{2v_{sr}(1-v_{sr})} $
    $ p^{m\ast}_{1i n} $ $ \frac{1+c}{2} $ $ \frac{1+c}{2}+\frac{\gamma(v_{sr}+c(1-v^{2}_{sr}))}{4} $
    $ p^{m\ast}_{2i n} $ $ \frac{1+c}{2} $ $ \frac{1+c}{2} $
    $ p^{m\ast}_{2i r} $ $ \frac{v+c(1-v_{lr}-v^{2}_{lr})}{2} $ $ \frac{v_{sr}+c(1-v^{2}_{sr})}{2} $
    $ \pi^{m\ast}_{2} $ $ \frac{1-2c-6c^2-5c^2v_{lr}-c^2v^{2}_{lr}}{4}+\frac{c^2(1+3v_{lr})}{4v_{lr}(1-v_{lr})} $ $ \frac{1-2c-c^2-3c^2v_{sr}-c^2v^{2}_{sr}}{4}+\frac{c^2}{4v_{sr}(1-v_{sr})} $
    $ \pi^{m\ast} $ $ \frac{(1-c)^2}{4}+\gamma(\frac{1-2c-6c^2-5c^2v_{lr}-c^2v^{2}_{lr}}{4}+\frac{c^2(1+3v_{lr})}{4v_{lr}(1-v_{lr})}) $ $ (\frac{1-c}{2}+\frac{r(v_{sr}+c(1-v^{2}_{sr}))}{4})^2+\gamma(\frac{1-2c-c^2-3c^2v_{sr}-c^2v^{2}_{sr}}{4}+\frac{c^2}{4v_{sr}(1-v_{sr})}) $
     | Show Table
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