A Dual-Channel Cooperative Strategy between Recyclers and E-Tailers for the Offline and Online Recycling of Waste Electronics
This paper aims to solve the following problems. First, the competition between online and offline recycling channels is considered to determine the optimal recycling price, so that the recycler and the e-tailer can maximize their profits. Second, we compare the profits and recycling market size of the recycler and the e-tailer in the non-cooperative and cooperative scenarios, and verify whether cooperative recycling might have a significant impact on increasing the recycling market size and expanding the total profits of the recycler and the e-tailer. Third, we design a contract with which to achieve supply chain coordination based on the success of the second validation, and analyze the conditions under which cooperation can be reached by exploring the revenue sharing factors for both parties.
2. Literature Review
This paper draws on two streams of the existing literature: the dual-channel electronics reverse recycling supply chain problem and the supply chain coordination problem in the presence of recyclers.
The above studies on dual-channel recycling have focused on the coordinative and cooperative strategies between recyclers and other closed-loop supply chain members, as well as the comparison and selection of recycling channels but have rarely touched upon reverse supply chains where recycled electronics are resold as secondhand products or have examined dual-channel cooperation between recyclers and e-tailers, which affects the online and offline pricing and profits of electronics in supply chains. By formulating a Stackelberg game model for recyclers and e-tailers in cooperative and non-cooperative scenarios, this study obtained an equilibrium solution for a cooperative decision-making model, performed a comparative analysis to validate the effectiveness of the model through simulations, and examined the factor ranges of a revenue-sharing contract.
3. Problem Description and Modeling
In waste electronics recycling, denote the online and offline recycling prices, respectively, denotes the transfer price of electronics from the recycler to the e-tailer, and denotes the e-tailer’s reselling price of the secondhand product. Superscripts are used to represent the mode of cooperation between the recycler and the e-tailer. represents the decentralized mode and represents the centralized mode. Regardless of the presence of cooperation, it is always necessary to ensure profitability for both the recycler and the e-tailer: .
The parameters and descriptions in the demand function are as follows:
The assumptions of this model are as follows:
This problem considers only a single decision cycle. When the recycler and the e-tailer are not cooperating, the recycler’s dual recycling channels make joint decisions to maximize the recycler’s profit. At the same time, the recycler and the e-tailer each aim at their own maximum profit, and there is a Stackelberg game relationship where the recycler assumes the role of leader and the e-tailer acts as the follower. When the recycler and the e-tailer cooperate, their objective is to maximize the overall supply chain benefit.
The model only considers the situation where the net value of the recycled electronic products is high, i.e., the recycler recycles the used electronic products and then transfers them to the e-tailer for the second-hand electronic products sale, and does not consider the situation where the recycler transfers them to the manufacturer for remanufacturing.
When the recycler recovers electronic products that can be sold as used products, it will first estimate the value of the electronic products according to their condition, and then refurbishes these products and transfers them to the e-tailer at a price . The recycling price of an electronic product is considered as the optimal recycling price. To ensure that the recycler is profitable, there is . The recycling price in this paper refers to the sum of the recycling valuation and the refurbishment fee, and it is based on the optimal recycling price minus the refurbishment fee of the electronic products that the recycler arrives at the valuation of the electronic product.
Assuming that consumers have equal price sensitivity towards online and offline channels of recycling and in the channel selection of the two channels is a perfect substitution relationship, that is, the elasticity coefficient of the recycling price and the substitution coefficient of the recycling price of the two channels is the same. That is, .
The revenues of the recycler and the e-tailer in the two scenarios come from the transfers of electronics and the sales of secondhand electronics, respectively. The difference lies in that advertising costs are paid by the recycler in the non-cooperative scenario and by the e-tailer in the cooperative scenario.
5. Model Comparison and Revenue-Sharing Contract
The non-cooperative model and the cooperative model are compared for total recycled volume, their profits of the recycler, profits of the e-tailer, and total profits of the supply chain so that we can select a suitable recycling model for both the recycler and the e-tailer.
The dual-channel cooperative recycling model is compared to the dual-channel non-cooperative recycling model with .
Relying on their traffic advantages, the e-tailer invests in advertising to establish their online recycling channel and to help the recycler increase the recycled volume of electronics. As compensation, a portion of the recycler’s revenue is allocated to the e-tailer. The recycler provides a stable supply channel and qualified secondhand electronics to the e-tailer, who also allocates a portion of their sales revenue to the recycler. Compared with the decentralized scenario, the scenario of revenue-sharing contract-based coordination between the two parties can achieve rational profit distribution and increase the profit of the recycler, the profit of the e-tailer, and the total profit of the supply chain.
According to the revenue-sharing contract, a portion based on the revenue-sharing factor of the recycler’s transfer payment income is given to the e-tailer. is determined by the recycler. Similarly, a portion based on of the e-tailer’s sales income is allocated to the recycler. is determined by the e-tailer.
Because of the high complexity of the relationship, a specific case study was used to analyze the profits of the supply chain members under the contract.
This paper proposes two dual-channel models for recycling waste electronics: a non-cooperative model based on online and offline recycling by a recycler, and a cooperative model based on offline recycling by a recycler but online recycling by an e-tailer. The two models were compared with regard to their maximizing of the supply chain’s overall profit. After finding the cooperative recycling model to be superior, we proposed a revenue-sharing contract to redistribute the profits of the recycler and the e-tailer after both parties had chosen to cooperate, then investigated the two parameters affecting cooperative decision-making: the recycler’s revenue-sharing factor and the e-tailer’s revenue-sharing factor. Our findings are as follows.
Compared with the dual-channel non-cooperative recycling model, the dual-channel cooperative recycling model effectively utilizes the high traffic of the e-tailer and makes it possible to recycle more waste electronics, thereby increasing the total profit of the supply chain. This indicates that leveraging online publicity is an effective way to increase the recycling rate of WEEE and expand the scale of recycling. From the point of view of overall supply chain profitability and the recycling volume, the recycler should actively cooperate with the e-tailer, helping them to enter the recycling market and simultaneously increasing their own scale of recycling;
Even if the total profit of the supply chain is higher in the cooperative recycling model, the recycler and the e-tailer may not necessarily choose to cooperate. The key to cooperation lies in ensuring increases in the profits of both the recycler and the e-tailer as a result of the revenue-sharing contract. The profits of both parties can be increased as long as their revenue-sharing factors in the contract are set within reasonable ranges. This suggests that the original distribution of the revenue generated from the cooperation between the recycler and the e-tailer is unfair. Without coordination, the e-tailer pays extra costs for publicity without receiving any compensation, making it unlikely for the e-tailer to cooperate;
The recycler is the more critical party and their revenue-sharing factor is the key to whether cooperation can be established. This suggests that for the reverse supply chain selling second-hand electronic products, recyclers must carefully consider a reasonable distribution of their earnings after cooperation. This will enable both parties to establish a cooperative relationship that both parties can realize increased profits through cooperation.
In conclusion, the main theoretical contribution of this paper is to design a cooperation model for recycling of used electronic products involving recyclers and e-tailers at the same time, and to explore the conditions for the two parties to reach cooperation by designing a revenue-sharing contract, which is instructive for the decision-making of recyclers and e-tailers in the recycling of used electronic products. At the same time, the cooperation strategy proposed in this paper can fully integrate the advantages of both parties, accelerate the product flow of the reverse supply chain of electronic products, expand the scale of the electronic product recycling market, help enterprises to improve their profits, and better realize the recycling of used electronic products and the sustainable green development of the supply chain.
However, there are some limitations of this paper, the limitations and future research directions are as follows:
While the existing model considers only one stage of the game, in real-world dual-channel competition, the game will continue for several stages until reaching an equilibrium. We plan to extend the model to multi-stage games in future research;
The reverse supply chain of waste electronics recycling is often accompanied by the sales of electronics in a forward supply chain. Future research should examine a combination of forward and reverse supply chains for trade-in subsidies of electronics between the recycler and the e-tailer.
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