A decision-making model for remanufacturers: Considering both consumers' environmental preference and the government subsidy policy

Remanufactured products have the significantly low environmental impact through their life cycles, but consumers' acceptance of remanufactured products is low and uncertain. To promote the use of remanufactured products, the governments in developing countries such as China have provided subsides for remanufacturers. However, how to understand consumers' preferences and effectively use the government subsidy is still difficult for remanufacturers. This paper develops a decision-making model considering both consumers' preference for remanufactured products and effect of the government subsidy. Using the price elasticity of demand (PED) of remanufactured products as an indicator to differentiate consumers' environmental preference, it examines a joint decision problem for price determination of a remanufactured product and share of the subsidy between the remanufacturer and consumers. It is found that the optimal price and the subsidy-sharing percentage are inversely proportional to the weighted-sum of the price elasticity of demand (PED). Based on data from a leading remanufacturer in China, this study finds that if a remanufacturer shares a percentage of the subsidy with consumers, it can get more profit due to the increased market. In order to balance the trade-off of price and share of the subsidy effectively, the sharing percentage of the subsidy and the optimal price of remanufactured products should follow the certain rules, and the sharing percentage of the subsidy relies on the proportion of green consumers. In addition, it is necessary for remanufacturers to have a complete understanding of consumers' environmental preference and its trends.