Competitive strategy in remanufacturing and the impact of take‐back laws

Abstract This paper examines the impact of take‐back laws within a manufacturer/remanufacturer competitive framework. Take‐back laws require that firms take responsibility for the collection/disposal costs of their products. We consider two alternative implementations of take‐back laws that are distinguished by the degree of control that the manufacturer has on returns sold to the remanufacturer. In one implementation, known as collective WEEE take‐back, the manufacturer has no control over returns sold to the remanufacturer. The other implementation, known as individual WEEE take‐back, gives complete control to the manufacturer. We develop a general two‐period model to investigate questions of interest to policy‐makers in government and managers in industry. Our results suggest that, in some settings, enactment of collective WEEE take‐back will result in higher manufacturer and remanufacturer profits while simultaneously spurring remanufacturing activity and reducing the tax burden on society. A negative effect is higher consumer prices in the market. In other settings, we find that collective WEEE take‐back introduces a structural change to the industry—creating an environment where remanufacturing becomes profitable when it is not profitable without a take‐back law. With respect to individual WEEE take‐back, we find that the manufacturer often benefits from allowing the remanufacturer to enter the market, though from a government policy‐maker perspective, there are clear risks of monopolistic behavior.