Competitive strategies for original equipment manufacturers considering carbon cap and trade. (January 2020)

• Record Type: Journal Article
• Authors: Chai, Qiangfei; Xiao, Zhongdong; Zhou, Guanghui
• Is Part Of: Transportation research. Volume 78(2020)
• Publication Date: 2020-01
• Subjects: Remanufacturing -- Competition -- Carbon cap and trade -- Fixed-fee licensing -- Royalty licensing; Transportation -- Research -- Periodicals; Transportation -- Environmental aspects -- Periodicals; 354.76
• DOI: 10.1016/j.trd.2019.11.022
• Languages: English
• ISSNs: 1361-9209

Abstract

Highlights: The impact of carbon cap and trade policy (CTP) is investigated. Licensing strategy is proposed to coordinate the OEM and IR under CTP. Conditions under which each strategy can achieve coordination are derived. Licensing strategy can improve both environmental and economic outcomes. Decision support for OEMs that face competition from IRs under CTP is provided. Abstract: This paper considers an original equipment manufacturer (OEM) faces competition from an independent remanufacturer (IR) and they both are regulated by carbon cap and trade policy (CTP). We develop models to explore the OEM's optimal competitive strategy in the face of IR's competition and environmental regulation. We first investigate the impact of CTP on the OEM and IR. Then, we analyze three competitive strategies that the OEM may choose: remanufacturing, fixed-fee licensing, and royalty licensing. We investigate their optimal decisions under each strategy and identify the conditions under which these strategies can coordinate the OEM and IR. Finally, we explore conditions under which one strategy is superior to another. The results show that the OEM is worse off when competing with the IR under CTP if the carbon cap allocated to the OEM is small. Fixed-fee licensing and royalty licensing can coordinate the OEM and IR not only from an economic perspective but also from an environmental perspective. The OEM's optimal competitive strategy is determined by thresholds of three critical parameters: the fixed cost of setting up a remanufacturing system, the fixed-fee, and the per-unit royalty. We provide specific guidance on strategy selection for the OEM.