Third-party remanufacturing mode selection: Outsourcing or authorization?

• The OEM obtains higher profit through outsourcing remanufacturing.
• The 3PR prefers authorization when consumer acceptance of remanufactured products is low.
• The 3PR prefers outsourcing when consumer acceptance of remanufactured products is high.
• Authorization is better for environment with low consumer acceptance.
• Outsourcing is better for all parties and environment with high consumer acceptance.

Many original equipment manufacturers (OEMs) allow third-party remanufacturers (3PRs) to perform remanufacturing operations of branded or patented products – through either outsourcing or authorization. This study compares these two modes by modeling the game between the OEM and the 3PR on equilibrium quantities, prices, and profits. The results suggest that when consumers perceive the remanufactured products with a low value, the 3PR prefers the authorization approach; otherwise the 3PR prefers the outsourcing approach. However, in both scenarios, the OEM obtains higher profit through outsourcing than through authorization. Our further analysis compares two modes’ impacts on consumer surplus, social welfare, and environment.