Reward-penalty mechanism in a closed-loop supply chain with sequential manufacturers' price competition

This paper examines reward-penalty mechanism (RPM) for a closed-loop supply chain (CLSC) with two sequential competing manufacturers. Game theoretic models are developed to investigate both cases: no RPM in the CLSC, and RPM with government is implemented in the CLSC. Equilibrium Nash solutions are obtained and the conditions under which RPM is effective are investigated. Results indicate that: (i) RPM lowers the wholesale price and the retail price, while it boosts the sales quantity, profits of the manufacturers, the retailer, and the total profit of CLSC as well as the collection rate. (ii) The collection rate of the follower manufacturer enhances with the incremental substitute coefficient, whereas it does not have effect on the leader manufacturer. (iii) All participants in the CLSC will make ever-increasing profits only when products' substitute coefficient is lower than certain values. Additionally, RPM keeps the market competitive order since it protects the wholesale price of the leader's market leading status.