Int. J.

Production Economics 263 (2023) 108933

Contents lists available at ScienceDirect

International Journal of Production Economics

journal homepage: www.elsevier.com/locate/ijpe

Recovering and remanufacturing to fulfill EPR regulation in the presence of

secondary market
Jian Cao a, b, Sisi Wu c, *, Sanjay Kumar d
a
School of Management, Zhejiang University of Technology, Hangzhou, 310023, China
b
Center for Global & Regional Environmental Research, The University of Iowa, Iowa City, 52242, United States
c
School of Economics and Management, Zhejiang University of Science and Technology, Hangzhou, 310023, China
d
College of Business, Valparaiso University, Valparaiso, 46383, United States

A R T I C L E I N F O A B S T R A C T

Keywords: To relieve competitive pressure from the secondary market and increase customer demand, producers may
Remanufacturing choose to recover and remanufacture used products. Extended Producer Responsibility (EPR) regulations have
EPR regulation been formulated to alleviate the waste-disposal problem, which may also affect the development of remanu­
Secondary market
facturing industry. We investigate how EPR affects the remanufacturing decision and analyze related perfor­
Used product
mance, including collection rate and producer profit. Our results demonstrate that EPR regulation is beneficial
during the early development phase of remanufacturing industry and help improve the collection rate. However,
our analyses also reveal that EPR may limit the producer’s profits, and stringent collection targets inhibit the
producer from remanufacturing. In addition, we find that high-durability used original/remanufactured products
are not conducive for remanufacturing. The model is calibrated with field-collected heavy truck engine rema­
nufacturing data. Three Model Extensions covering comprehensive regulation, duopoly competition, and recy­
cling used original products supplement the findings.

1. Introduction e-commerce platforms (e.g., Amazon and eBay).

A variety of waste-disposal legislations have been enacted to alle­
viate environmental and social problems associated with discarded
products all over the world. Extended Producer Responsibility (EPR)
regulations are the most common waste-disposal legislations employed
worldwide. Examples include the European Union (EU)’s WEEE Direc­
tive, Michigan Beverage Container Deposit Law, and End-of-Life Vehicle
Recycling Law in Japan. The legislation stipulates that a producer’s
responsibility is not limited to production and extends to the entire life
cycle of a product, particularly to collecting and adequately disposing/
treating their discarded products (Corsini et al., 2017; Gui, 2020; Shan
et al., 2021). Currently, EPR-based take-back legislation has been widely
implemented in developed countries (e.g., the United States, Germany,
and France) to manage the collection and recycling of waste after the
consumption of certain products. Producers who fail to comply with EPR
regulations could be severely punished. For example, according to Law
2020–105 on Anti-Waste and Circular Economy, France imposes fines on
producers who do not comply with EPR and prohibit sales of products
that fail to meet EPR requirements in France through cross-border
The EPR regulations target both nondurable and durable products.
Nondurable products (e.g., packaging, pharmaceuticals, and paints) are
discarded after use. Durable products (e.g., automobiles, heavy ma­
chinery, electrical and electronic products), however, can enter the
secondary market where used products are resold and rebought by end
consumers after a portion of their useful life (Huang et al., 2019; Fu
et al., 2022). For instance, trading used automobiles in the secondary
market is common. In this case, durable-goods producers face compe­
tition from the secondary market (Huang et al., 2014). Producers
increasingly offer trade-in/buyback programs to recapture used prod­
ucts and increase customer demand. The collected products are used for
remanufacturing, recycling, and other types of product reuse (Li and Xu,
2015; Dong et al., 2023). Remanufacturing can reuse the durable core
components of returned products, and restore their quality and perfor­
mance (Cole et al., 2017; Vedantam and Iyer, 2021). Automobile com­
panies such as Toyota, BMW, Mercedes-Benz, and Ford often collect
their used products through trade-in programs and then sell them after
refurbishing and remanufacturing (Lacourbe, 2016; Li et al., 2019).
Xerox remanufactures products returned from trade-in programs, which

* Corresponding author. Zhejiang University of Science and Technology, Hangzhou 310012, China.
E-mail address: sswu@zust.edu.cn (S. Wu).

https://doi.org/10.1016/j.ijpe.2023.108933
Received 22 September 2022; Received in revised form 30 May 2023; Accepted 31 May 2023
Available online 7 June 2023
0925-5273/© 2023 Elsevier B.V. All rights reserved.
J. Cao et al.
saves them millions of dollars each year (Li and Xu, 2015).
Remanufacturing can play a vital role in increasing profit as it
potentially saves labor, raw material, and energy costs (Krystofik and
Gaustad, 2018; Nie et al., 2021). Examples from the industry show that
there is a large market for remanufactured products. According to a
survey conducted by Remanufacturing Central in 2005, the estimated
total annual sales of 73,000 remanufacturing firms in the United States
was $53 billion in 1997 (Atasu et al., 2008). As a remanufacturing giant,
Caterpillar’s 20% of parts sold globally are remanufactured parts, and
the annual revenue of its remanufacturing business exceeded $4 billion
in 2012. ReCellular, Inc. Remanufactures millions of products annually,
occupying more than 50% of the market share (Li et al., 2016). As the
remanufacturing literature (Geyer et al., 2007; Chen and Chen, 2019;
Ramirez et al., 2020) points out, similar successful examples can be
found in many industries; for instance, those of Cummins, BMW,
Volkswagen, and Xerox indicate that remanufacturing can be profitable.
Although recovering and remanufacturing used products benefit
enterprises, the operations involved encounter many challenges. Pro­
ducers make decisions primarily to improve their profits. The central
question durable-goods producers seem to face is, “Whether and how do
they benefit from recovering and remanufacturing used products?” In
the presence of a secondary market, some potential links exist between
customer demand, supply, recovery, and remanufacturing. The
customer demand for remanufactured products is affected by the price
and supply. However, the supply of remanufactured products is con­
strained by the volume of used products collected by producers. The
decision to collect and remanufacture used products is complex, and
producers need to understand the interaction mechanisms between
customer demand, supply, recovery, and remanufacturing. However,
managers have little guidance, and there is limited research on this
issue.
Many EU countries have introduced EPR-based take-back legislation
into the field of reuse/remanufacturing. For instance, the European
Parliament suggested a 5% reuse target during the most recent recast of
the WEEE Directive. The European Environmental Bureau, RREUSE,
ComputerAid, ACR+, and other environmental organizations support
the target (Esenduran et al., 2016). However, it is unclear whether the
producers need to be responsible for collecting and properly disposing of
their discarded reused/remanufactured products. As with the discarded
original products, the discarded reused/remanufactured products also
cause damage to the environment. Collecting and properly disposing
reused/remanufactured products is critical. Therefore, we consider that
remanufactured products should also be within the scope of EPR su­
pervision; that is, the producer is responsible for collecting end-of-life
(EOL) remanufactured products and disposing them properly. Howev­
er, the recovery of remanufactured products is ignored in the actual
operation and existing literature. We regard a remanufactured product
as another new product that faces the same EPR regulation as the new
product.
The implementation details of EPR-based take-back legislation
worldwide are quite diverse. Some involve setting a collection rate
target, and the target is often defined as a minimum fraction of sales that
producers are obliged to collect and dispose of. For example, the
collection rate target for waste products was 45% for European Union in
2016, which was subsequently raised to 65% in 2019. Products recycled
under the EPR initiatives are mainly EOL products (Hickle, 2014;
Esenduran et al., 2016; Ameli et al., 2019). But EPR does not explicitly
stipulate that used products cannot be recycled. In other words, a pro­
ducer may recover used products in working conditions from the sec­
ondary market to fulfill EPR obligations (Alev et al., 2020).
From the government’s perspective, the main objective of EPR
regulation (e.g., setting a collection target) is to reduce the amount of
waste going to landfills by promoting product take-back. While it seems
that EPR regulation would increase collection levels, it is not clear what
the impact of EPR regulation on remanufacturing and related perfor­
mance (e.g., secondary market involvement, collection rate, and
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International Journal of Production Economics 263 (2023) 108933
producer profit) would be. Some literature explores the remanufacturing
strategy under EPR regulations and analyzes the effect of EPR regula­
tions (Esenduran et al., 2016; Chen and Ulya, 2019; Liu et al., 2022).
Esenduran et al. (2016) find that take-back legislation with collection
targets may or may not increase remanufacturing, which depends on its
implementation, and the total environmental impact might increase as
the collection target increases. However, these studies do not consider
the secondary market. In the presence of a secondary market, the effect
of EPR regulation on remanufacturing is more nuanced and deserves
further exploration.
Some studies investigate the problems of recovering used products
from the secondary market (Xiao, 2017; Alev et al., 2020; Dong et al.,
2023), while they do not consider remanufacturing those used products.
Alev et al. (2020) analyze the effect of EPR legislation on the secondary
market interference from recovering used products and show that EPR
may reduce or increase secondary market interference by producers. Li
et al. (2019) explore the producer strategy of remanufacturing used
products collected through a trade-in program. They assume that the
producer resells remanufactured products to a separate secondary
market. In contrast, we assume that the producer sells those together
with new products.
Furthermore, Li et al. (2009) mainly research the effect of the
separate secondary market on trade-in remanufacturing decisions and
ignore the impact of EPR regulation on remanufacturing. In sum, the
problem of remanufacturing used products collected from the secondary
market under EPR regulation requires further research. To fill this gap,
we aim to address these problems explicitly and provide firms and
governments with theoretical guidelines for practical operations.
This study aims to answer the following questions.
(1) What is the durable-goods producer’s optimal strategy for
recovering and remanufacturing used products? We consider a
secondary market, and the producer can either choose to do
nothing or buyback used products from the secondary market and
then remanufacture and sell those together with new products.
(2) If the government implements EPR regulation (setting collection
targets for new and remanufactured products), what should the
producer do to fulfill EPR obligations and achieve maximum
profits? Especially whether and how a producer could utilize EOL
and used products to meet collection targets.
(3) How does EPR regulation affect the producer’s remanufacturing
strategy? Do EPR regulations promote or hinder remanufacturing
and related performance improvement?
To further advance understanding of the remanufacturing decision
and the effect of EPR on remanufacturing, we consider a durable-goods
producer that does not remanufacture without EPR regulations
(benchmark model, Model N), remanufacture without EPR regulations
(Model R), or remanufacture under EPR regulations (Model RE). Model
N reveals that the existence of used products may reduce the producer’s
profit. Therefore, we develop Model R to further study whether and how
the producer engages in remanufacturing used products to increase
profits. Then considering implementing EPR regulations on both new
and remanufactured products, the impact of EPR regulations on rema­
nufacturing strategies is analyzed in Model RE. We further compare and
analyze the models from the perspectives of EPR regulation impacts,
secondary market involvement, collection rate, and producer profit.
To the best of our knowledge, this paper is the first to research
producers’ remanufacturing strategies and how EPR regulations affect
remanufacturing and related performance in the presence of a secondary
market. Our analysis and results indicate producers’ recovery (of used
and end-of-life items) and production strategies vary in different
remanufacturing stages. High-durability used original/remanufactured
products are not conducive to remanufacturing. With strict EPR regu­
lations by regulatory bodies of government, the producers may need to
collect EOL products to make up for the insufficient collection.
J. Cao et al.
Additionally, the producers may meet the collection target by recycling
all EOL products. Our results also suggest that EPR regulations help the
remanufacturing industry in its nascent and early development stages,
leading to a higher collection rate. However, EPR regulations may be
detrimental to increasing producer profits, and stringent collection tar­
gets inhibit the producer from remanufacturing.
The rest of the paper is organized as follows: Section 2 outlines
relevant literature; we outline the model and benchmark analysis in
Section 3; Section 4 provides the decision models for remanufacturing
and EPR; Section 5 presents comparative analysis and case study; Sec­
tion 6 concludes the research.
2. Literature review
Three streams of work are closely related to our study: (1) durable
goods and secondary market; (2) remanufacturing; and (3) recycling
legislation.
2.1. Research on durable goods and secondary market
A rich stream of literature investigates issues related to durable
goods and secondary markets. Some papers explore the secondary
market cannibalization problem that reduces firms’ new product sales
and profits (Ishihara and Ching, 2019; Fu et al., 2022). For example, the
secondary trading of used goods in the automobile industry caused a
35% drop in retailers’ profitability (Chen et al., 2013). Strategic and
operational decision-making issues regarding the secondary market
have also been analyzed in various studies (Angelus, 2011; Huang et al.,
2019). Xiong et al. (2016) investigated the effects of manufacturers’
upgrading strategy on the decision to enter the secondary market and
established the optimal entry conditions. Li et al. (2019) analyzed the
original equipment manufacturers’ pricing, trade-in remanufacturing,
and entry decisions in the presence of a secondary market.
Furthermore, several papers highlight enterprises’ strategies in
responding to secondary market competition. Oraiopoulos et al. (2012)
studied the original equipment manufacturers’ relicensing strategy and
the conditions that favor stimulating or deterring the secondary market.
Lacourbe (2016) explored the implications of exporting used durable
products to international secondary markets and found this practice may
significantly stimulate new product leases in the home market. Fu et al.
(2022) show that producers with sufficiently low product reliability can
use secondary market interference to avoid cannibalization from used
products. A particularly relevant stream of the literature suggests pro­
ducers can use buybacks, trade-ins, or remanufacturing strategies to
counter the adverse effects of the secondary market (Xiao, 2017; Li et al.,
2019; Huang et al., 2023). Dong et al. (2023) investigated the impact of
the secondary market on the choice of used product collection policies
and found that the buyback policy can effectively mitigate secondary
market competition.
Our work is closest to Alev et al. (2020) among the related literature.
They assume the producer interferes with the secondary market by
recovering and discarding used products. Unlike them, we consider the
remanufacturing of used products collected from the secondary market
and study the effect of remanufacturing strategies on the secondary
market (e.g., consumer demand) and related performance (e.g., collec­
tion rate and producer profit).
2.2. Research on remanufacturing
A stream of literature on remanufacturing implementation explores
the strategic management issues such as pricing (Ferrer and Swamina­
than, 2010; Abbey and Blackburn, 2015) and production decisions
(Ferguson et al., 2009; Calmon and Graves, 2017) for new and rema­
nufactured products. Liu et al. (2018) explored the optimal production
and pricing strategies for a monopolistic manufacturer engaged in
remanufacturing. Wu et al. (2018) studied the production and
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International Journal of Production Economics 263 (2023) 108933
coordination decisions in a closed-loop supply chain when remanu­
facturing costs are disrupted. Similarly, Li et al. (2020) investigated the
different acquisition strategies of used products and analyzed the pricing
strategies for new and remanufactured products.
Moreover, some studies highlight the core acquisition decisions for
remanufacturing. Cai et al. (2014) explored the core acquisition problem
for a manufacturing/remanufacturing system at two (high and low)
quality conditions. Various acquiring methods have been addressed,
including collecting used products (Shi et al., 2011; Li et al., 2019) and
recovering EOL products (Meng et al., 2017; Ramirez et al., 2020). The
literature on collecting used products for remanufacturing is more
relevant to our work. Robotis et al. (2012) investigated the impact of the
collected used product quality on the remanufacturing cost and pro­
duction investments. Cole et al. (2017) compared the buyback and
trade-in policies for acquiring used products for remanufacturing.
Huang et al. (2019) considered two recycling approaches for trade-in
rebates to collect used products. However, the extant literature rarely
considers the existence of secondary markets.
Other literature focuses on the independent remanufacturers (Ors­
demir et al., 2014; Huang and Wang, 2019), while our work is related to
studies that assume that the original producer (e.g., Caterpillar, Cum­
mins, and SANY Heavy Industry) implements remanufacturing (Shi
et al., 2011; Zhou et al., 2013; Liu et al., 2018). In general, the main
distinguishing features between past papers and our work are as follows:
(1) we consider the interaction between remanufacturing and the sec­
ondary market, and (2) we analyze the producer’s production strategy
when new, remanufactured, and used products are simultaneously
available on the market.
2.3. Research on recycling legislation
Economics researchers have extensively studied the interactions
between product recycling and environmental legislation. Hong et al.
(2016) examined the impacts of government subsidies on recycling
electronic scrap products in reverse supply chains. Chen and Ulya
(2019) investigated green supply chain members’ recycling and rema­
nufacturing strategies under a reward-penalty mechanism. The form of
take-back legislation relevant to our work primarily includes setting a
collection rate target (Esenduran et al., 2016; Alev et al., 2020). Esen­
duran et al. (2016) analyzed how the legislation with collection and
reuse targets affects the collection and remanufacturing decisions. In
addition, some studies compare the different forms of product take-back
legislation. Atasu et al. (2013a) investigated the implementation of
manufacturer-operated and state-operated take-back legislation. Shan
et al. (2021) compared the advanced recycling fee, pre-disposal fee, and
EPR legislation from the perspective of the manufacturer, the product’s
environmental impact, and social welfare.
The EPR system is a powerful tool for the government to implement
environmental regulations (Nnorom and Osibanjo, 2008; Kiddee et al.,
2013; Sun et al., 2022). Some papers focus on the effects of EPR legis­
lation on enterprises’ recovery and remanufacturing strategies. Jacobs
and Subramanian (2012) studied how to share the responsibility of
product recycling under EPR to improve the total profit in the supply
chain. Johnson and McCarthy (2014) explored firms’ remanufacturing
production plans through mathematical modeling in the context of EPR
legislation. Furthermore, a significant number of articles investigate the
performance of EPR legislation. Zhou et al. (2017) show that EPR
legislation improves environmental performance but decreases the
manufacturers’ and recyclers’ total profits. Alev et al. (2020) investi­
gated a durable goods producers’ secondary market strategy under EPR
and found EPR could reduce or increase producers’ secondary market
interference.
However, to the best of our knowledge, the literature does not
consider the effects of EPR regulations on remanufacturing strategies
under the secondary market. Furthermore, existing EPR-based envi­
ronmental legislations treat the original product as the supervision
J. Cao et al.
object (Shi et al., 2011). This article also includes remanufactured
products within the scope of EPR supervision.
In summary, we contribute to the literature by analyzing a pro­
ducer’s remanufacturing strategies and how EPR regulations affect
remanufacturing and related performance in the presence of a secondary
market. We find that existing research on remanufacturing and EPR has
ignored the existence of the secondary market, thereby exaggerating the
product scope suitable for remanufacturing and the benefits of EPR
regulations.
3. Model and benchmark analysis
3.1. Model framework
We consider a profit-maximizing producer that sells a durable
product with two periods of useful life. The product reaches its end-of-
life at the end of two periods (Zhou et al., 2017; Alev et al., 2020). We
first outline the product life flow (see Fig. 1). A product is new (n) when
it has never been used and has two periods of useful life left. After one
period of use, a new product becomes a used original product (u) with
another period of useful life left. It may enter the secondary market,
where they are sold and bought by consumers. The used original prod­
ucts become EOL original products (eol-u) after a period of use. Eco­
nomic and environmental benefits could be achieved if used products
are remanufactured at an appropriate time before reaching the EOL. See
the Online Appendix (OA1.1) for a discussion on the best time to
remanufacture products.
We consider that the producer collects used original products from
the secondary market through a trade-in or buyback program, then re­
manufactures these products. We assume that after remanufacturing, a
used original product becomes a remanufactured product (r), which also
has two periods of useful life. Products can be remanufactured only
once. After one period of use, remanufactured products become used
remanufactured products (ru) which may enter the secondary market. A
used remanufactured product becomes an EOL remanufactured product
(eol-ru) after one period of use.
As shown in Fig. 2(a), we first construct the benchmark model
(Model N), in which remanufacturing is not considered, i.e., the pro­
ducer only produces and sells new products to consumers. After a period
of use, new products become used items and enter the secondary market.
In Model R, shown in Fig. 2(b), we consider the producer collects used
original products from the secondary market, then remanufactures and
sells these products along with new products. The third model, i.e.,
Model RE in Fig. 2(c), considers EPR regulations. The producer also
collects and remanufactures used original products, and any insuffi­
ciency in meeting EPR regulations is addressed by collecting and recy­
cling EOL products.
Model N is intended to reveal the producer’s competitive pressure
from used products. Considering the producer that is already proactively
engaged in remanufacturing, Model R further investigates whether and
Fig. 1. Product life flow.
4
International Journal of Production Economics 263 (2023) 108933
how the producer should recover and remanufacture used products. By
comparing Model R and Model N, we explore whether remanufacturing
alleviates the secondary market competition and improves producer
profits. Finally, the impact of EPR regulations on remanufacturing sec­
ondary market and related performance can be obtained by comparing
Model RE and Model R.
3.2. Model assumptions
3.2.1. Product characteristics
The producer produces new and remanufactured products. The unit
cost of producing a new and remanufactured product is cn and cr ,
respectively. Remanufacturing production consumes fewer resources
(material and energy) than new products (Savaskan et al., 2004; Wu and
Zhou, 2019). Therefore, 0 < cr < cn < 1. A summary of the notation is
shown in Table 1.
The durability of new, used original, remanufactured, and used
remanufactured products are represented by 1, δu , δr , and δru , respec­
tively. Products depreciate with use. Remanufacturing can improve a
product’s durability. Also, the durability of used remanufactured prod­
ucts is often lower than that of used original products. Therefore,
0 < δru < δu < δr < 1.
3.2.2. Recycling, remanufacturing, and EPR regulations
The producer decides the quantity of new (qn ) and remanufactured
(qr ) products to produce and sell. As in the existing literature, we focus
on a focal point at which the output of new and remanufactured prod­
ucts remains the same as in the previous period (Huang et al., 2001;
Agrawal et al., 2012). The maximum amount of recoverable products is
limited by the volume of products in the previous period. We assume
that only used original products could be remanufactured, while other
collected EOL products (including eol-u and eol-ru) are recycled for
materials, and the unit recycling cost of EOL products is denoted by d.
Moreover, we assume that the producer inspects the collected products
and ensures all used original products recovered can be used for rema­
nufacturing. Therefore, the collected and remanufactured quantity of
used original products cannot exceed the new product quantity
(0 ≤ qr ≤ qn ).
EPR implementations in some regions (e.g., the European Union, and
Minnesota, Indiana, Wisconsin, and Michigan in America) commonly
impose collection and recycling rate targets, which are defined as a
fraction of sales that the producer has to collect and recycle (Alev et al.,
2020). We model a scenario where through EPR regulations, the gov­
ernment imposes a collection rate target on both new (n) and remanu­
factured (r) products, which is indexed by τ0 , where τ0 ∈ (0, 1) .
Hereafter, we refer to this as the collection target for brevity. We model
it by assuming that, if qn (qr ) denotes the sales of new (remanufactured)
products, then the producer has to collect and recycle at least τ0 qn (τ0 qr )
products (Atasu et al., 2013b).
To follow new product regulations, the producer may collect both
J. Cao et al.
Fig. 2. Model framework.
used original products (u) and EOL original products (eol-u), and the
total collection amount must be at least τ0 qn . The recovery volume of u is
equal to the quantity remanufactured qr . Additionally, the producer
collects eol-u only to meet the shortages, if any, in the collection rate
target set by the EPR regulations. Therefore, if the remanufactured
product quantity is higher than that of the collection amount target
(qr ≥ τ0 qn ), the producer does not recover eol-u products. However, if
qr < τ0 qn , the producer recovers τ0 qn − qr eol-u products to recycle and
meet EPR obligations. In addition, to meet the remanufactured product
regulations, the producer will collect and recycle τ0 qr eol-ru products.
3.2.3. Consumer characteristics and demand
Consumer’s willingness to pay is denoted by θ, which is uniformly
distributed on [0,1]. Each consumer purchases at most one unit of the
product. Product durability affects consumer utility. High-durability
products have a high consumer utility. A consumer with valuation θ
receives utility θ, δr θ, δu θ, and δru θ from using a new, remanufactured,
used original, and used remanufactured product, respectively, and re­
ceives 0 from remaining inactive. The assumptions are similar to those of
Ferrer and Swaminathan (2006) and Hong et al. (2017). Product
5
International Journal of Production Economics 263 (2023) 108933
durability δk (k = n, r, u, ru, and δn = 1) can be used to assess consumer
preference, as well as the discount on performance and economic value
of the product as compared with the new product (Ma et al., 2013; Chen
and Chen, 2019).
In the presence of remanufacturing, the demand for new, remanu­
factured, used original, and used remanufactured products from con­
sumers are given by qn = 1 − (pn − pr )/(1 − δr ), qr =
(pn − pr )/(1 − δr ) − (pr − pu )/(δr − δu ), qu = (pr − pu )/(δr − δu ) −
(pu − pru )/(δu − δru ), and qru = (pu − pru )/(δu − δru ) − pru /δru , respec­
tively. Without remanufacturing, only new and used products exist in
the market. The demand for new products is qn = 1 − (pn − pu )/(1 − δu ),
and the demand for used products from consumers is qu =
( )
(δu pn − pu )/ δu − δ2u . See Online Appendix (OA1.2) for details.
3.2.4. Inverse demand functions
The producer collects used original products in a pattern similar to a
trade-in or buyback program. The buyback price equals the market-
clearing price pu on the secondary market (Alev et al., 2020). The sup­
plies of used original and used remanufactured products on the sec­
ondary market are from consumers who purchased new and
J. Cao et al. International Journal of Production Economics 263 (2023) 108933

Table 1 consumer demand for used products, which in turn intensifies the
Summary of notation. competition between used and new products. This increased competi­
Parameters tion can further suppress the demand for new products, leading to a
reduction in its output and ultimately causing a decrease in the pro­
cn The cost of producing a new product
cr The cost of producing a remanufactured product ducer’s profit.
δu Used original product durability, δu ∈ (0, 1) Therefore, a producer of high-durability and high-cost products
δr Remanufactured product durability, 0 < δu < δr < 1 seeking to improve profits may recover and remanufacture used prod­
δru Used remanufactured product durability, 0 < δru < δu < δr < 1 ucts. Such initiatives may also help ward off competitive threats from
τ0 The collection target set by the government
d The cost of recycling an EOL product
the secondary market of used original products. Our analysis for Model
θ Consumer valuations for product R and Model RE supports this premise.
Variables
qn Quantity of new products 4. Decision models for remanufacturing and EPR
qr Quantity of remanufactured products
pn The sale price of a new product
pr The sale price of a remanufactured product 4.1. Model for remanufacturing without EPR (model R)
pu The sale price of a used original product
pru The sale price of a used remanufactured product Competitive pressure from used products and the potential of
qu Consumer demands for used products remanufacturing profits may motivate the producer to collect used
qru Consumer demands for used remanufactured products
qeol− u Quantity of EOL original products recovered by the producer
original products from the secondary market for remanufacturing. The
qeol− ru Quantity of EOL remanufactured products recovered by the producer producer collects used original products in a pattern similar to a trade-in
τ Original product collection rate, τ = (qr + qeol− u )/qn or buyback program, in which the buyback price is equal to the market-
π Producer’s profit clearing price pu on the secondary market (Alev et al., 2020). With
remanufacturing, there are four types of products in the market: new,
remanufactured, used original, and used remanufactured products. Note
remanufactured products, respectively, in the previous period. There­
that a new product can only be remanufactured once. After one period of
fore, the quantity of used original and used remanufactured products on
use, new products may enter the secondary market as used original
the secondary market is constrained by qn and qr , respectively.
products; from these, some are recovered and remanufactured. Rema­
The demand for used original products originates from the producer
nufactured products can also enter the secondary market after one
and consumer, while the demand for used remanufactured products only
period of use. Used original products and used remanufactured products
comes from consumers. The producer’s demand for used original
reach EOL after one period of use. The producer determines the output
products is qr , and consumer demand for used original and used rema­
of new (qn ) and remanufactured (qr ) products. All products acquired as
nufactured products are qu and qru , respectively. Following Huang et al.
used original products are remanufactured. The producer makes de­
(2019) and Alev et al. (2020), using the market-clearing conditions of
cisions based on the following profit maximization problem.
used original and used remanufactured products, we can obtain that
( ) ( ) ( )
qn = qr + qu and qr = qru . Furthermore, we can get pn = 1 − (1 + δu )qn − max πR qRn , qRr = qRn pRn − cn + qRr pRr − cr − pRu
(δr + δru − δu )qr , pr = δr − (δr + δu )qn − (δr + δru − δu )qr , pu = δu (1 − (2)
s.t. 0 ≤ qRr ≤ qRn
2qn ) − δru qr , and pru = δru (1 − 2qn − qr ). See Online Appendix (OA1.3)
for details. In Model N, pn = 1 − (1 + δu )qn , pu = δu (1 − 2qn ). Note, pRn = 1 − (1 + δu )qRn − (δr + δru − δu )qRr , pRr = δr − (δr + δu )qRn −
( )
(δr + δru − δu )qRr , pRu = δu 1 − 2qRn − δru qRr , qRu = qRn − qRr and qRru = qRr .
3.3. Benchmark model (model N, without remanufacturing and EPR) See the Online Appendix (OA2.1) for the solution to the model. There
exist thresholds cRr1 and cRr2 (cRr1 ≤ cRr2 ) such that we have the following
In this model, remanufacturing and EPR regulations are not consid­ proposition.
ered. Only new and used original products are in the market. The pro­
Proposition 2. The producer’s recovering and remanufacturing stra­
ducer decides on the output of new products only. The producer’s
tegies depend on the remanufacturing cost cr , which can be divided into
decision-making problem is as follows:
three scenarios, as shown in Table 2.
( ) ( )
max πN qNn = qNn pNn − cn The producer’s remanufacturing choice is graphically illustrated in
N N
(1) Fig. 3. Note that, in general, the development of the remanufacturing
s.t. pn = 1 − (1 + δu )qn
industry is conducive to lower remanufacturing costs cr . Based on
Note that the superscript N indicates Model N. See the Online Ap­ remanufacturing costs (from high to low), Scenario R-III is the unde­
pendix (OA1.4) for the solution to the model. Then we have the following veloped or budding stage, R-II is the development stage, and R-I is the
proposition. most mature stage of the remanufacturing industry.
Proposition 1. Under Model N, the producer’s equilibrium output is In the budding period (R-III, cr > cRr2 ), the producer does not have
qN incentives to recover the used original products for remanufacturing.
n = (1 − cn )/[2(1 + δu ) ], the price of a new product is pn = (1 + cn )/2,
N
That is, the producer does not interfere with the secondary market.
and the profit is πN = (1 − cn )2 /[4(1 + δu ) ].
Therefore, R-III is the same as Model N. As the remanufacturing industry
Based on Proposition 1, it is easy to obtain the following corollary.
develops (R-II, cRr1 < cr ≤ cRr2 ), the potential of remanufacturing profits
Corollary 1. Unit profit pN n − cn decreases with cn , while qn and π
N N

decrease with cn and δu .

Corollary 1 indicates that in the absence of remanufacturing and EPR Table 2
regulations, faced with a high-cost and high-durability product, the Producer’s strategies without EPR
producer chooses to reduce the output of the new product, and its profit Scenario qRr qRu qRru Producer’s strategies
declines in this scenario. When the production cost cn increases, there is R-I (cr ≤ cRr1 ) qRn 0 qRn Recovering and
typically an increase in the product price (a decrease in unit profit), remanufacturing all u
resulting in a reduction in consumer demand. As a result of this lower R-II 0< qRr < qRn qRn − qRr Recovering and
demand, the producer reduces production scale. Eventually, the (cRr1 < cr ≤ cRr2 ) qRr remanufacturing some u
decrease in both unit profit and output leads to a reduction in total R-III (cr > cRr2 ) 0 qRn 0 Not recovering and
remanufacturing u
profit. Furthermore, the improved durability leads to an increase in

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J. Cao et al. International Journal of Production Economics 263 (2023) 108933

encourages producers to switch from no remanufacturing to remanu­

facturing. The producer enters the secondary market to repurchase used
original products and sells new and remanufactured products to con­
sumers. The remanufactured products flow into the secondary market
after a period of use. Consequently, used original and used remanufac­
tured products exist together in the secondary market, which enriches
consumers’ choices and increases the intensity of competition among
products.
As remanufacturing costs decrease further, producers expand the
collection and production scale of remanufactured products while
reducing the output of new products. Thus, the used original product
supply declines while a more extensive supply of used remanufactured
products is available on the secondary market. Used remanufactured
products gradually erode the market share of used original products.
When the remanufacturing industry enters a mature period (R-I,
cr ≤ cRr1 ), the producer recovers and remanufactures all used original
products. No used original products are available to the consumer, while
used remanufactured products completely occupy the secondary
market.
Based on Proposition 2, we can obtain the following corollary.
Fig. 3. Producer’s production and recovery strategies under Model R (cn =
0.4; δr = 0.7; δu = 0.4; δru = 0.25).
Corollary 2. cRr1 and cRr2 decrease with δu , δru , but increase with δr .
Corollary 2 reveals that high δr , and low δu and δru result in high
remanufacturing cost thresholds. A higher cRr1 (cRr2 ) means that it is easier
for the remanufacturing industry to enter the mature (development)

Fig. 4. Effects of δu , δr , and δru on Producer’s Decision under Model R

7
J. Cao et al. International Journal of Production Economics 263 (2023) 108933

stage. Therefore, products with high δr , low δu , and low δru are more considered as a way to fulfill the new product EPR regulations. Any
suitable for remanufacturing. insufficiency in meeting the collection target for new products is met by
We use a numerical approach to investigate the effect of product collecting EOL original products. To follow new product regulations,
durability and the remanufacturing cost thresholds on producer de­ producers may collect both used original products and EOL original
cisions. The results are displayed in Fig. 4, which further supports Cor­ products, and the total collection amount must be at least τ0 qn . Based on
ollary 2. the collection quantity of used original products, two scenarios arise, i.
As shown in Fig. 4, for high-durability used original/remanufactured e., qr ≥ τ0 qn and qr ≤ τ0 qn .
products and low-durability remanufactured products, the producer If qr ≥ τ0 qn , the recovery rate of used original products is enough to
chooses not to remanufacture (R-III). Fig. 4(a) charts that with low meet the collection target. As the collection target is met, the producer
durability used original products, producers engage in remanufacturing does not recycle any EOL original product. The producer recovers qr
(R-I and R-II) even if the remanufacturing cost is relatively high; how­ used original products for remanufacturing and recycles τ0 qr EOL
ever, for high durability used original products, remanufacturing may be remanufactured products. The producer’s problem is then given by the
feasible only if the remanufacturing cost is sufficiently low. High dura­ following:
bility used original products would imply a high economic- and use- ( ) ( RE ) ( RE )
max π RE qRE RE
n , qr = qRE pn − cn + qRE pr − cr − pRE − τ0 qRE
r d
value, which makes recovering expensive, limiting producers’ involve­ n r u
(3)
RE RE RE
ment in remanufacturing and secondary markets. As seen in Fig. 4(b), s.t. τ0 qn ≤ qr ≤ qn
remanufacturing strategy is also affected by durability improvement If qr ≤ τ0 qn , collecting only used original products is not enough to
from remanufacturing. The higher the improvement in durability or the meet the collection targets. Therefore, the producer not only recovers qr
lower the remanufacturing cost to upgrade durability, the more attrac­ used original products but also recycles τ0 qn − qr EOL original products
tive it is for the producer to interfere with the secondary market through from consumers. The producer’s decision-making problem is as follows.

( ) ( RE ) ( RE ) [ RE ]
max πRE qRE RE
n , qr = qRE pn − cn + qRE pr − cr − pRE − τ0 qn − (1 − τ0 )qRE d
n r u r
(4)
s.t. 0 ≤ qRE RE
r ≤ τ 0 qn

remanufacturing. Finally, Fig. 4(c) shows that the high durability of used
remanufactured products would make it less likely for producers to
engage in the remanufacturing market. For high-durability used rema­ Note, pRE RE RE RE
n = 1 − (1 + δu )qn − (δr + δru − δu )qr , pr = δr − (δr + δu )
nufactured products, lower prices may lead to fierce competition with qRE
n − (δr + δru − δu )qr , pu = δu (1 − 2qn ) − δru qr , qRE
RE RE RE RE RE
u = qn − qr ,
RE

remanufactured products (attracting more consumers due to the cost- RE RE

effectiveness), which are not conducive to the production and sales of
remanufactured products.
In summary, low-durability used original/remanufactured products
and high-durability remanufactured products are more suitable for
remanufacturing. Remanufacturing is especially preferable for products
that diminish in performance after a period of use but can be restored
well through remanufacturing.
4.2. Model with remanufacturing under EPR (model RE)
Building on Model R, we now analyze a producer’s recovering and
remanufacturing strategies in the presence of EPR regulations. Both new
and remanufactured products fall within the scope of EPR regulations
with a collection rate target of τ0 . Let qn (qr ) denote the sales volume of
new (remanufactured) products. The producer has to collect and recycle
at least τ0 qn (τ0 qr ) products.
To meet the remanufactured product EPR regulation, the producer
recycles τ0 qr EOL remanufactured products at a cost denoted by τ0 qr d.
Furthermore, the producer collects used original products from the
secondary market and remanufactures all of these, which can be
and qru = qr . See the Online Appendix (OA2.2) for solution details. For
remanufacturing cost thresholds cRE RE RE RE
r1 ≤ cr2 ≤ cr3 ≤ cr4 , we have the
following proposition.
Proposition 3. Based on the remanufacturing cost cr , the producer’s
strategies in the presence of EPR can be divided into the following five
scenarios (shown in Table 3).
Fig. 5 charts a producer’s remanufacturing strategies to comply with
the EPR obligations. The choice and quantity of used original (for
remanufacturing) and EOL original/remanufactured product recycled
by a producer depend on the remanufacturing costs. Similar to Model R,
we could consider the five cost scenarios to represent various remanu­
facturing stages. We can state that RE-V is the most undeveloped or
budding stage of the remanufacturing industry; RE-IV, RE-III, and RE-II
could be considered as early, middle, and late development stages; RE-I
is the most mature stage of the remanufacturing industry.
In the budding period (RE-V, cr > cRE r4 ), the producer does not
remanufacture (qRE r = 0) and only recycles EOL original products
(qRE RE
eol− u = τ0 qn ) to meet the EPR regulations. As the remanufacturing
industry enters the early development stage (RE-IV, cRE RE
r3 < cr ≤ cr4 ), the
producer’s best option is to adopt a mixed collection strategy. In

Table 3
Producer’s strategies in the presence of EPR
Scenario qRE
r qRE
eol− u qRE
eol− ru
Producer’s strategies

RE-I (cr ≤ cRE

r1 ) qRE
n
0 τ0 qRE
n
Recover all u for remanufacturing
r1 < cr ≤ cr2 )
RE-II (cRE RE
τ0 qRE
n < qr < qn
RE RE 0 τ0 qRE
r
Recover u that exceed the collection target for remanufacturing
RE-III (cRE
r2 < c r ≤ τ0 qRE
n
0 τ20 qRE
n
Recover u for remanufacturing based on the collection target
cRE
r3 )
RE
RE-IV (cr3 < cr ≤ 0 < qRE RE
r < τ 0 qn τ0 qRE RE
n − qr τ0 qRE
r
Recover a mix of u and eol-u to fulfill EPR obligations
cRE
r4 )
RE-V (cr > cRE
r4 )
0 τ0 qRE
n
0 Only recycle eol-u to fulfill EPR obligations and not recover u for remanufacturing

8
J. Cao et al. International Journal of Production Economics 263 (2023) 108933

addition to recycling EOL original products (qRE RE RE

eol− u = τ0 qn − qr ), the
producer recovers and remanufactures used original products
(0 < qRE RE
r < τ0 qn ). As remanufactured and used remanufactured prod­
ucts enter the market, the market share of used original products
declines.
With a decline in remanufacturing costs, the remanufacturing in­
dustry enters the middle development stage (RE-III, cRE RE
r2 < cr ≤ cr3 ).
Producers adopt the benchmark collection strategy, which is recovering
and remanufacturing used original products based on the collection
target set by EPR regulation (qRE r = τ0 qRE
n ). Under this setting, con­
sumers’ product demand is relatively stable, and the market share of
used original and used remanufactured products are also relatively
stable.
As remanufacturing costs decrease further, the remanufacturing in­
dustry reaches the late development stage (RE-II, cRE RE
r1 < cr ≤ cr2 ). The
producer recovers used original products which exceed the collection
target for remanufacturing, i.e., τ0 qRE RE RE
n < qr < qn . We call this exceed
collection target strategy. The producer collects and remanufactures a
significant amount of used original products. A large volume of used
remanufactured products available in the secondary market cannibal­
Fig. 5. Production and recovering strategy under Model RE (cn = 0.4; δr =
izes the market share of used original products.
0.7; δu = 0.4; δru = 0.25; τ0 = 0.4; d = 0.05).
Finally, when the remanufacturing cost is sufficiently low, the in­
dustry could be considered mature (RE-I, cr ≤ cRE r1 ). The producer adopts
the all-collection strategy, which is recovering all used original products
for remanufacturing, i.e., qRE
r = qRE
n . There are no used original products

Fig. 6. Effects of δu , δr , δru , and τ0 on producer’s decision under Model RE (cn = 0.4; d = 0.05).

9
J. Cao et al.
on the secondary market and used remanufactured products thoroughly
saturate the secondary market.
Based on Proposition 3, we obtain the following.
Corollary 3. cRE RE RE RE
r1 , cr2 , cr3 and cr4 decrease with δu , δru , and τ0 , but
increase with δr .
Corollary 3 indicates that the relationship between the remanu­
facturing cost thresholds and product durability are similar to Model R,
and the remanufacturing cost thresholds decrease with the increase of
collection target.
Next, we explore the effect of δu , δr , δru , and τ0 on the producer’s
decision through numerical studies (see Fig. 6). Fig. 6 also supports
Corollary 3. In the presence of EPR regulations, low δu and δru and high
δr are also beneficial to remanufacturing initiatives. See Fig. 6(a)-(c). As
shown in Fig. 6(d), as the collection targets increase, the producer
chooses strategies strategy from I to V. A high collection target set by the
government would inhibit the development of the remanufacturing
industry.
In most practical scenarios (especially in the budding, early, and
middle development periods of the remanufacturing industry), qr ∈ [0,
τ0 qn ]. We further conduct a numerical analysis to investigate the impact
of EPR regulation on producer’s strategies under scenarios RE-III, RE-IV,
and RE-V. The results are presented in Fig. 7. For various values of
collection targets τ0,1 ≤ τ0,2 , if τ0 ≤ τ0,1 , the producer chooses strategy
III (qREr = τ0 qRE RE
n ; qeol− u = 0); if τ0,1 < τ0 < τ0,2 , the producer adopts
strategy IV (0 < qRE RE RE RE RE
r < τ0 qn ; qeol− u = τ0 qn − qr ); and if τ0 ≥ τ0,2 , the
producer chooses strategy V (qRE 0; q RE
τ0 qRE
r = eol− u = n ).
When τ0 ≥ τ0,1 , as τ0 increases, there is a decrease in the output of
remanufactured products (i.e., the collection amount of used original
products) and an increase in the recovery amount of EOL original
product. This means that if the collection target is set high, producers are
less likely to fulfill EPR obligations of original products by only recov­
ering used original products (RE-III). Instead, the producers may need to
collect EOL original products to make up for the insufficient collection
(RE-IV), or they may meet the collection target by recycling EOL original
products entirely (RE-V).
To mitigate the collection burden, producers may even consider
reducing the production scale of new products (RE-III and RE-V). When
the collection target is low, the remanufacturing volume increases with
the collection target (RE-III). It is worth noting that when the collection
target is above a certain level, the production scale of remanufactured
products is reduced with the increase in the collection target (RE-IV), or
products are not remanufactured at all (RE-V).
Fig. 7. Analysis of the collection rate τ0 (cn = 0.4; cr = 0.15; δr = 0.7; δu =
0.4; δru = 0.25; d = 0.05).
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International Journal of Production Economics 263 (2023) 108933
Therefore, in the budding and early development period of rema­
nufacturing industry, the higher the collection target is, the more diffi­
cult it is for producers to remanufacture and engage in the secondary
market. In summary, during the budding and early periods of the
remanufacturing industry, the government should set a moderate
(relatively low) collection target. This would help in the development of
the remanufacturing industry.
In addition, by comparing the remanufacturing cost thresholds of
Model RE and Model R, the following corollary can be obtained.
Corollary 4. (i) cRE r4 > cr2 , the producer can profitably recover and
R
remanufacture used original products at a higher remanufacturing cost
under EPR regulation. (ii) cRE r1 < cr1 , the producer recovers all used
R
original products for remanufacturing at a lower cost under EPR
regulation.
As seen from Corollary 4(i), a producer in Model RE finds it easier to
initiate remanufacturing and enters a remanufacturing development
stage sooner. EPR regulations require the producer to recover a certain
quantity of products in the budding stage of the remanufacturing in­
dustry, which vastly increases the producer’s expenses and reduces its
profit. To compensate for the economic losses caused by EPR, the pro­
ducer may choose to recover and remanufacture used original products
to increase its profit. Therefore, EPR regulations motivate the producer’s
implementation of remanufacturing in the budding stage of the rema­
nufacturing industry.
However, we find from Corollary 4(ii) that Model RE enters the
remanufacturing industry maturity later than Model R. When the
remanufacturing industry is relatively mature, due to the high output of
remanufactured products, producers need to recycle a large quantity of
EOL remanufactured products to fulfill EPR obligations, which may lead
to a heavy recycling burden. Affected by the recycling burden, compared
with the situation without EPR regulations, the remanufacturing in­
dustry matures later under EPR regulations.
In summary, EPR regulations help incentivize producers to reman­
ufacture in the budding stage while hindering the remanufacturing in­
dustry as it matures.
5. Comparative analysis and case studies
To further investigate the impacts of EPR regulations and remanu­
facturing, the models are compared and analyzed in this section. In
addition, a case study is presented using actual data on heavy truck
engine remanufacturing. The findings from the models are applied to the
case company.
5.1. Comparative analysis
We now perform numerical analysis to compare the models from the
perspectives of EPR regulation impacts, secondary market involvement,
collection rate, and producer profit. The unit cost of a new product is set
at 0.4, which is similar to Shi et al. (2016). The unit cost of a remanu­
factured product is necessarily lower than cn , for which we consider a
wide range of possible values based on Abbey et al. (2019); cr =
0 ∼ 0.25. Referring to relevant literature (Agrawal et al., 2012; Alev
et al., 2020) and actual investigation data, the values of product dura­
bility adopted are δr = 0.7, δu = 0.4, and δru = 0.25. Similar to Alev
et al. (2020), the unit recycling cost of EOL products is set to 0.05. The
value of the collection target is 0.4, which is based on the parameter
setting of Esenduran et al. (2016). Therefore, we adopt the parametric
values as follows: cn = 0.4, δr = 0.7, δu = 0.4, δru = 0.25, d = 0.05, τ0 =
0.4, and cr = 0 ∼ 0.25.
5.1.1. EPR regulation impacts
By comparing the output of remanufactured products in Model RE
and Model R, we can analyze the influence of EPR regulations on the
producer’s remanufacturing strategy (see Fig. 8) and then provide policy
J. Cao et al.
Fig. 8. Comparison of remanufacturing production in model r and RE
insights on the role of EPR in promoting the development of remanu­
facturing industry.
As depicted in Fig. 8, when the remanufacturing cost is below a
certain threshold (0 < cr < crr ), EPR regulations decrease the recovering
and remanufacturing amount of used original products (qRE r < qr ).
R
Therefore, in such a developed stage, the government does not need EPR
regulations to guide the development of the industry. However, in most
industrial sectors, the remanufacturing industry is in the development
stage and has a relatively high remanufacturing cost. When the rema­
nufacturing cost is above a certain threshold (crr < cr < cRE r4 ), EPR reg­
ulations help increase the recovering and remanufacturing amount of
used original products (qRE r > qr ). It is worth noting that when
R
cRr2 ≤ cr < cRE
r4 , the producer does not engage in remanufacturing without
EPR regulations (qRr = 0); but with EPR regulations, the producer en­
gages in remanufacturing (qRE RE
r > 0). Especially when crr < cr ≤ cr3 , the
remanufactured product output (i.e., the collected amount of used
original product) under EPR regulations has already met the collection
target (qREr = τ0 qREn > qr ). Consequently, government guidance, sup­
R used remanufactured products (qRE ru ≥ qru ).
port, and incentives are still needed for the industry’s growth.
Fig. 9. Comparison of the secondary market involvement.
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International Journal of Production Economics 263 (2023) 108933
5.1.2. Secondary market involvement
Producer’s recovery and remanufacturing affect the volume of the
used products that consumers can purchase, which in turn interferes
with the secondary market (affects consumer demand for used prod­
ucts). EPR regulations have an impact on remanufacturing and indi­
rectly affect the secondary market. By analyzing and comparing the
demands for used original products (qu ) and used remanufactured
products (qru ), we explore the interference effects of remanufacturing
and EPR regulations on the secondary market. Fig. 9 charts the inter­
action of various quantities of used products with the remanufacturing
cost.
Fig. 9 suggests that remanufacturing industry development leads to a
decline in the consumer demand for used original products. When the
remanufacturing industry enters the development period (cr ≤ cRr2 ),
remanufacturing enriches consumer options by adding remanufactured
and used remanufactured products to the market—accordingly, the
consumer demand for used original products declines (qRu < qN u ). With
the decrease in remanufacturing costs cr , the producer collects and re­
manufactures an increasing volume of used original products, and a
growing percentage of used remanufactured products flood the sec­
ondary market.
Used original and used remanufactured products are highly com­
plementary in the secondary market; that is, when consumers’ demand
for one product decreases (increases), their demand for the other
product increases (decreases). When the remanufacturing cost is below a
threshold (e.g., cr < 0.0914), EPR regulations are not conducive to
implementing remanufacturing, resulting in reduced remanufactured
products (as shown in Fig. 8, qRE r < qr ) and increased available used
R
original products. This leads to increased consumer demand for used
original products (qREu ≥ qu ). Furthermore, the reduction in remanu­
R
factured products directly results in decreased used remanufactured
products on the secondary market, thereby reducing consumer demand
for used remanufactured products (qRE ru < qru ). On the contrary, when the
R
remanufacturing cost is above a threshold (e.g., cr > 0.0920), EPR reg­
ulations encourage the producer to implement remanufacturing, leading
to increased remanufactured products and reduced available used
original products, which reduces the consumer demands for used orig­
inal products (qRE u < qu ). Moreover, the increase in remanufactured
R
products directly results in increased used remanufactured products on
the secondary market, consequently growing consumer demands for
R
In summary, for producers, initiating remanufacturing will reduce
the consumer demand for used original products. EPR regulations will
improve the demand for used original products when the remanu­
facturing cost is low but suppress the demand when the remanufacturing
cost is high. When the remanufacturing industry is mature, it is mainly
remanufacturing that interferes with the secondary market. In contrast,
in the budding period, the secondary market is unaffected. When the
remanufacturing industry is in development periods (i.e., between
budding and maturity), both remanufacturing and EPR regulations
interfere with the secondary market.
5.1.3. Collection rate
The producer collects used and EOL products from the secondary
market or consumers. A higher collection rate is considered to have a
better environmental performance. The collection rate of remanufac­
tured products qeol− ru /qr , is 0 in Models N and R and is τ0 in Model RE
(except E-V, where it is zero). The collection rate of remanufactured
products in Model RE is the highest. In addition, based on the perspec­
tive of the entire life cycle from raw materials to product disposal, we
could consider (qeol− u +qeol− ru )/qn as a measure of total recycling. The
measure is 0 under Models N and R (no recycling EOL products).
Therefore, the recycling level of Model RE is the best.
Let τ denote the original product collection rate, τR = qRr /qRn , τRE =
(qRE RE RE
r + qeol− u ) /qn . Fig. 10(a) illustrates the collection rate for Model R
J. Cao et al.
Fig. 10. Collection rate（τ = (qr + qeol− u ) /qn ）
and Model RE. The figure suggests that for high cr (cr > crt ) the collection
rate in Model RE is relatively higher than that of Model R (τRE > τR ). For
sufficiently low cr values (cr ≤ cRE r1 ), the collection rate of Model RE is
equal to Model R (τRE = τR = 1). It is counterintuitive that for relatively
low cr values (cRE
r1 < cr < crt ), the collection rate of Model RE is some­
what inferior (τRE < τR ). When cRE RE RE
r1 < cr < crt (cr2 < crt < cr3 ), the pro­
ducer adopts RE-II or RE-III strategy under EPR regulations (as per
Proposition 3, qRE eol− u = 0) and the recovery rate of used original prod­
ucts is sufficient to meet the collection target of the original product
(τRE = qRE RE R R RE RE
r /qn ≥ τ0 ). Therefore, the ratios qr /qn and qr / qn can be
used to compare the collection rates. Fig. 10(b) suggests that when cRE
cr < crt , to relieve the recovery pressure of EOL remanufactured prod­
ucts under EPR regulations, the producer reduces the output of rema­
nufactured products (qRE r < qr ) and increases the output of new
R
products in most instances (qn > qRn ), resulting in τRE < τR (although it
RE
is possible that qREn < qn , this does not affect the overall result).
R
During remanufacturing industry’s budding and early development
periods, EPR leads to a higher collection rate. Therefore, the govern­
ments’ EPR regulations will help improve environmental performance.
As the remanufacturing industry gradually enters its middle and later
Fig. 11. Producer profits.
International Journal of Production Economics 263 (2023) 108933
development periods, EPR leads to a lower collection rate. EPR regula­
tion does not affect the collection rate in a mature remanufacturing in­
dustry. In summary, based on the perspective of collection rate
(environmental performance), the governments should implement EPR
regulation in the budding and early stages of remanufacturing. They
should no longer interfere when it has developed to a certain stage.
5.1.4. Producer profits
Remanufacturing and EPR would be attractive to a producer if they
derive benefits from them. To assess the attractiveness, we compare the
producer profits in different models. Fig. 11 illustrates the interaction of
r1 < producer profits with the remanufacturing cost. Fig. 11 reveals that
when the remanufacturing cost is below a certain threshold (cr ≤ cRr2 ),
the producer profit under Model R is higher than that of Model N
(πR > πN ). Therefore, when the remanufacturing industry has developed
to a particular stage, the producer can improve profit by remanu­
facturing used original products, supporting a part of the conclusion in
Section 3.3. Our results highlight that remanufacturing is a profitable
strategy for producers. With a gradual reduction in remanufacturing
costs, remanufacturing is conducive to improving enterprise benefits.
On the measures of producer profit, Model RE underperforms Model
R (πRE < π R ). For remanufacturing costs above a threshold (cr > crp ), the
producer profit of Model RE is even lower than that of Model N
(πRE < π N ). EPR regulations achieve collection targets (environmental
benefits) at the cost of enterprise benefits. When a producer can
remanufacture, but the remanufacturing cost is high (i.e., the early
period of remanufacturing development), the government’s imple­
mentation of EPR-related policies may not be conducive to increasing
producer profits. When the remanufacturing cost is below a threshold
(cr < crp ), the producer’s profit under Model RE is higher than that of
Model N (πRE > πN ). For a producer who implements remanufacturing
under EPR regulations, when the remanufacturing industry is relatively
mature, the improvement from remanufacturing on producer profits is
more significant than the reduction caused by the EPR regulations.
5.2. A case study
In this section, we present an actual case study to investigate further
the impact of EPR regulations on remanufacturing and the secondary
market. The case study helps us understand a producer’s remanu­
facturing strategies to obtain higher economic efficiency and meet the
EPR regulations. This analysis focuses on the Steyr336 heavy truck en­
gine (from now on referred to as Steyr336) produced by Sinotruk Jinan
12
J. Cao et al.
Fuqiang Power Co., Ltd (SJFP). Our analysis focuses on the EPR and the
secondary market involvement of the producer. SJFP, established in
1994, specializes in producing auto parts and is China’s first enterprise
to remanufacture automobile engines. The company can remanufacture
20,000 units per year.
Our choice of automobile engines is motivated for several reasons.
First, automobile engine producers are subjected to EPR-based recycling
legislation in many countries worldwide. Second, automobile engines
already have an active secondary market, with many used products
traded offline and online. Third, producers actively use marketing
methods to buy back used engines from consumers (e.g., engine “trade-
in” programs).
The SJFP recovers and remanufactures used Steyr336. According to
the investigation, the company has carried out recovery activities. Such
recovery of used Steyr336 can be regarded as a trade-in or buyback
program, in which the buyback price equals the market-clearing price on
the secondary market. Therefore, the SJFP that uses strategy R-II in
actual operations can be considered the producer under Model R. The
parameter values for our model are collected through the field investi­
gation of SJFP. The company location (China) has established a tax-
subsidy mechanism (recycling fund system) to implement EPR regula­
tion. Regrettably, it has not yet imposed a collection rate target based on
EPR. However, China is exploring how to set collection targets in EPR-
based environmental regulation policy design. Therefore, we also
Fig. 12. Engine case analysis.
Note: cn = 0.49, δr = 0.95, δu = 0.58, δru = 0.46, and d = 0.064. “0”, “+“, and “-” in parentheses represent qRE
13
International Journal of Production Economics 263 (2023) 108933
regard the SJFP as the producer under Model RE. Referring to the
collection target stipulated in some developed countries or regions, we
set the range of collection targets, then analyze SJFP’s optimal decision
under EPR regulations and compare it with the realistic situation. Our
analysis of the SJFP’s strategies under EPR is forward-looking, which
can provide valuable management enlightenment for the remanu­
facturing enterprise and government.
Based on the field investigation of SJFP, the following relevant in­
formation and data were collected. The selling price of a new and
remanufactured Steyr336 is RMB 70,000 (1 dollar ≈ 6.87 RMB) and
RMB 44,000, respectively. Remanufactured Steyr336 sells for about
63% of the new product price. The production cost for a remanufactured
Steyr336 is RMB 20,000. According to the investigation, the company’s
new product profit is approximately 30% of the price. Therefore, the
production cost for a new Steyr336 is estimated to be RMB 49,000.
As for the recycling cost of EOL Steyr336, the per-unit collection and
the per-unit transportation costs are RMB 7500 and RMB 500, respec­
tively. The average weight of each Steyr336 is approximately 800kgs,
and the discarded steel price is 2 RMB/kg, which results in a profit of
RMB 1600 by processing EOL Steyr336 as resources. Accordingly, the
unit recycling cost of EOL Steyr336 is d = 7500 + 500 − 1600 = 6400
RMB. The product price and cost range defined in our model is 0~1.
Therefore, by scaling the monetary values by a factor of 100,000, we
obtain pn = 0.7, pr = 0.44, cn = 0.49, cr = 0.2, and d = 0.064.
u = qu , qu > qu , and qu < qu , respectively.
R RE R RE R
J. Cao et al.
The data collected for automobile engines in China does not indicate
the applicable collection rate. However, precise data is available from
other parts of the world. For example, the EU stipulated a product
collection target rate of 45% in 2016. The target was raised to 65% in
2019. Similarly, for Minnesota and Wisconsin, the target is currently at
80%. Following these, we use a range of values τ0 ∈ [0.45, 0.8].
The life of a typical heavy-duty truck engine is 15 years, and the
depreciation is about 7% per year. Following the model assumptions in
Section 3, we assume that the product has a two-period use life, with an
average of 7.5 years in each period. The durability of products that have
been used for one period is δu = (1 − 7%)7.5 = 0.58. SJFP has a tech­
nologically advanced and mature remanufacturing production line. The
performance of remanufactured Steyr336 is comparable to that of new
products; consequently, its durability is estimated at δr = 0.95. The
depreciation rate of a remanufactured Steyr336 is higher than that of the
original product (about 12%/year), and its life span is slightly lower
(about 12 years). Therefore, the durability of used remanufactured
Steyr336 is δru = (1 − 12%)6 = 0.46.
Based on remanufacturing cost and the collection target, SJFP can
adopt RE-(I–V) strategies, as shown in Fig. 12(a). For a given remanu­
facturing cost, a lower target collection rate could enable SJPF to collect
and remanufacture used original products. Note that Model RE includes
the considerations of EPR regulations while Model R does not. There­
fore, qRE
u − qu is used to measure the impact of the EPR regulation on the
R
secondary market (for the used original product). This measure reveals
three scenarios. See Fig. 12(b). In region A, the EPR regulations have no
impact on the secondary market, i.e., qRE
u = qu . In region B, EPR regu­
R
lations increase consumers’ demand for used Steyr336, i.e., qRE u > qu .
R
This, in turn, weakens the secondary market participation of SJFP. In
region C, EPR regulation decreases consumers’ demand for used
Steyr336, i.e., qREu < qu . This leads to increased secondary market
R
involvement.
The remanufacturing cost of a Steyr336 is 0.2 (unit: 100,000 RMB). If
the collection target is below 54%, SJFP prefers to recover used Steyr336
based on the target (benchmark collection strategy RE-III). See Fig. 12
(a). However, if the collection target is above 54%, the company collects
used and EOL Steyr336 to meet the target (mixed collection strategy RE-
IV). Under the circumstance that the remanufacturing cost remains the
same, regardless of collection target and remanufacturing strategy (i.e.,
III or IV), EPR increases the company’s secondary market involvement,
leading to a lower Steyr336 reuse rate and higher remanufacturing rate.
For SJFP at this stage, the government implementing EPR regulations
will help reduce the competitive threat from the used Steyr336, thereby
encouraging the development of the remanufacturing industry.
Whether EPR regulations weaken or enhance secondary market
participation mainly depends on the remanufacturing cost. However,
when the remanufacturing cost is sufficiently low, a producer’s sec­
ondary market activities are also influenced by the intensity of gov­
ernment regulations. Suppose SJFP reduces remanufacturing costs
through technological innovation. In that case, the impact of the EPR
regulation on the secondary market may fall into area B (see Fig. 12(b))
and may or even be into area A. For example, when the remanufacturing
cost of Steyr336 is reduced to 0.11, the collection target is below 52%,
and EPR does not interfere with the secondary market. If the collection
target is above 52%, EPR regulations will restrain the company’s
involvement in the secondary market. When the remanufacturing
development of enterprises such as SJFP is relatively mature, high
profits drive enterprises to collect products for remanufacturing volun­
tarily. The government may not need EPR regulations (if not considering
the collection of EOL products).
We now explore the interaction of various prices with the collection
target. The prices of new and remanufactured Steyr336 are 0.7 and 0.44,
respectively. Fig. 12(c) suggests that the new product price is slightly
lower than the optimal price (0.74–0.76) as per our models, while the
remanufactured product price is much lower than its optimal selling
14
International Journal of Production Economics 263 (2023) 108933
price (0.70–0.72). Of course, an important reason for the low price could
be that the remanufacturing industry has just started in China. Con­
sumers lack recognition and trust in remanufactured products, which
would require producers to sell remanufactured products at a lower
price. Compared with the new Steyr336, the profit margins from pro­
ducing remanufactured products are higher. Each remanufactured en­
gine’s price could be increased by 0.26–0.28. Therefore, the company
should boost consumers’ perception of remanufactured Steyr336 by
promoting remanufactured products, expanding the market share of
remanufactured products, and ultimately, higher economic benefits
through increased prices of remanufactured products.
In summary, this case study demonstrates how our model research
results apply to the industry. The effect of EPR on the secondary market
depends mainly on the characteristics of remanufactured products and
the intensity of government regulations. It is important to note that for
firms whose remanufacturing technology is still in the early develop­
ment period, EPR regulations will increase their involvement in the
secondary market. When remanufacturing technology gradually ma­
tures, EPR regulations will weaken the producer’s participation in the
secondary market.
6. Model extensions
6.1. Comprehensive regulations
Various types of EPR regulations are used in practice. Most EPR
legislations do not identify the products that can or can’t be recycled. A
durable-goods producer can utilize both EOL (recycle) and used prod­
ucts (remanufacturing) to fulfill EPR obligations (Alev et al., 2020). Our
Model RE considers a regulation where original and remanufactured
products are considered individually. It also includes used original
products in the scope of the original product EPR regulations. In this
section, we consider a comprehensive regulation on new and remanu­
factured products (i.e., producers, at their discretion, choose either one
or both types of products to meet EPR regulations). New regulations
regard remanufactured products as intermediate products. The gov­
ernment stipulates the volume of EOL products the producers need to
recycle. Therefore, the producer can use a mix of EOL original and EOL
remanufactured products to meet the EPR obligations. The recycling
amount only needs to meet qeol− u + qeol− ru = τ0 qn . The model is as fol­
lows. See the Online Appendix (OA3.1) for solutions.
max π (qn , qr ) = qn (pn − cn ) + qr (pr − cr − pu ) − τ0 qn d
(5)
s.t. 0 ≤ qr ≤ qn
Similar to the other models in this paper, the producers’
manufacturing strategy could be classified into three scenarios based on
remanufacturing cost. Scenarios I, II, and III have the remanufacturing
cost conditions of cr ≤ cr1 , cr1 < cr < cr2 , and cr ≥ cr2 , respectively. Sce­
′ ′ ′ ′
narios I and III of the comprehensive legislation model are the same as
Scenario I and V, respectively, of Model RE.
cr2 < cRE
r4 implies that under a comprehensive regulation, producers
′
enter the remanufacturing market at a lower remanufacturing cost than
Model RE. However, since cr1 > cRE r1 , remanufacturing growth rate is
′
expected to be faster with the comprehensive regulation. The remanu­
facturing industry will mature faster (i.e., maturity will be attained even
if the remanufacturing cost is higher) in the comprehensive regulations.
In addition, the total recovery amount of EOL products is never lower
than that of EPR regulations on each product type. As a result, in the
budding and early development periods of the remanufacturing in­
dustry, independent regulations on different types of products could be
effective. In comparison, a comprehensive regulation will bring higher
collection rates in the later development stages.
J. Cao et al.
6.2. Duopoly competition
This model considers a setting with two identical producers in a
secondary market. The model captures quantity competition between
two producers with two types of products (new and remanufactured).
The following model is established to analyze the impact of producer
competition on production decision-making and the secondary market.
The decision-making problem of producer i (i = 1, 2) is as follows:
max πi (qni , qri ) = qni (pn − cn ) + qri (pr − cr − pu ) − τ0 qri d
(6)
s.t. τ0 qni ≤ qri ≤ qni
max πi (qni , qri ) = qni (pn − cn ) + qri (pr − cr − pu ) − [τ0 qni − (1 − τ0 )qri ]d
s.t. 0 ≤ qri ≤ τ0 qni
(7)
The inverse demand functions of new products and remanufactured
products are pn = 1 − (1 +δu )Qn − (δr +δru − δu )Qr and pr = δr − (δu +
δr )Qn − (δr + δru − δu )Qr . The market-clearing price of used products is
pu = δu (1 − 2Qn ) − δru Qr , where Qn = qn1 + qn2 , Qr = qr1 + qr2 .
See the Online Appendix (OA3.2) for detailed solutions. Analysis re­
veals that the main conclusions from Sections 4 and 5 remain unchanged
in a duopolistic setting. Furthermore, the conditions (cost boundaries,
strategies adopted, etc.) for the five scenarios remain the same as in the
monopoly case (Model RE). The total remanufacturing and recovery rate
was also unchanged.
The presence of producer competition leads to the following differ­
ences from our main results for Model RE: (1) In the duopoly case, each
producer’s used original products recovery quantity, the output of new
products, and remanufactured products are less than those in the mo­
nopoly market. (2) Compared with a monopolist, the total recovery
quantity of used original products and the total output of new and
remanufactured products increases. Consequently, duopoly competition
is conducive to developing manufacturing and remanufacturing
industries.
6.3. Recycling used original products to compensate for EPR regulations
Model RE assumes that the producer compensates for the EPR reg­
ulatory requirements of original products by recycling EOL original
products (the recycling cost of EOL products is lower than the used
original products). Now we assume that to control the competitiveness
of used original products against remanufactured products and to reduce
threats from used original products, the producer entirely uses used
original products to meet the original product EPR obligations. The unit
residual value of used original products is denoted by v.
When qr ≥ τ0 qn , the model remains the same as Model RE. When
qr ≤ τ0 qn , the producer’s demand for used original products increases
from qr to τ0 qn , and the remaining τ0 qn − qr used original products are
resourced (i.e., recycled for materials). At this time, the market-clearing
condition is adjusted to qn = τ0 qn + qu , we can get pn = 1 − (1 + δu −
δu τ0 )qn − (δr + δru )qr , pr = δr − (δr + δu − δu τ0 )qn − (δr + δru )qr , pu =
δu − (2 − τ0 )δu qn − (δu + δru )qr , and pru = δru [1 − (2 − τ0 )qn − 2qr ]. The
producer’s problem is given by the following:
max π(qn , qr ) = qn (pn − cn ) + qr (pr − cr ) − τ0 qn pu + (τ0 qn − qr )v − τ0 qr d
s.t. 0 ≤ qr ≤ τ0 qn
(8)
See the Online Appendix(OA3.3) for the model and solutions. In brief,
similar to Model RE, this model can also be divided into five scenarios
based on remanufacturing costs, among which Scenarios I-III remain
unchanged (same as Model RE). Scenario IV and V change qualitatively
as follows: (1) Scenario IV changes to recover used original products
based on the collection target, remanufacture parts according to pro­
duction needs, and treat the rest as resources. (2) Scenario V changes to
recover used original products based on the collection target, not
implement remanufacturing, and treat all as resources.
15
International Journal of Production Economics 263 (2023) 108933
Compared with recycling EOL original products, the recycling
strategy used original products to fulfill EPR obligation has a more
significant effect on the secondary market, which is more conducive to
the producer to expand the production scale. Therefore, to weaken the
competitive threat of used original products or to occupy higher market
shares and secure the market, the producer may choose to increase their
intervention in the secondary market, that is, entirely utilize used
original products to comply with original product EPR obligation.
7. Conclusions
To alleviate competitive threats from the secondary market to new
products, a producer may choose to recover and remanufacture used
products. EPR-related government regulations are intended to improve
the environmental impact and encourage remanufacturing industry.
However, in practice, the application of EPR systems in remanufacturing
is still evolving, and EPR regulation’s impact on remanufacturing needs
further analysis.
In the presence of a secondary market, we analyzed the producer’s
production and remanufacturing strategies using different models,
which cover remanufacturing with and without EPR regulations. Equi­
librium solutions for the producer were expounded to understand how
EPR regulations affect remanufacturing strategy in the presence of a
secondary market. We then analyzed and compared the models based on
EPR regulation impacts, secondary market involvement, collection rate,
and producer profit. The model analysis leads to the following results.
(1) In different development periods of the remanufacturing in­
dustry, producers adopt different recovery and production stra­
tegies. The chosen strategies are affected by the remanufacturing
cost. Moreover, high-durability used original/remanufactured
products are not conducive to producing and selling remanufac­
tured products.
(2) When new and remanufactured products are subject to strict EPR
regulations (high collection targets), recovering used products
may not be enough. The producers may need to collect EOL
products to make up for the insufficient collection. Furthermore,
they may meet the collection target by recycling EOL products
entirely.
(3) EPR regulations (moderate collection targets) help the remanu­
facturing industry in its budding and early development periods,
leading to a higher collection rate. However, EPR may not be
conducive to increasing producer profits, and stringent collection
targets inhibit remanufacturing industry’s development.
When designed appropriately, EPR regulations could help the
remanufacturing industry by promoting remanufacturing and increasing
producer profits. However, ill-designed regulations (e.g., too high a
collection target when remanufacturing costs are high) could hurt the
industry’s progress. EPR regulations are effective in the early and middle
development stages. Regulations are not needed for a mature remanu­
facturing industry. Remanufacturing cost and product durability (for
used and remanufactured) are the most critical factors affecting a pro­
ducer’s strategic decisions. The results have practical significance for
enterprise managers who choose remanufacturing strategies in the face
of competition in the secondary market. Our study is also relevant for
government policymaking bodies that intend to encourage producers to
fulfill EPR obligations for environmental reasons. From a policymaking
perspective, this study helped answer questions such as: Do remanu­
factured products need to be regulated? If so, what kind of regulations
would be beneficial for the industry?
There are several possible future research directions. We assume that
the government sets the same collection target for new and remanu­
factured products; however, this may not apply to all instances in
practice. Future studies could relax this assumption. Additional types of
EPR regulatory measures, such as environmental tax subsidies and
J. Cao et al.
reward-penalty mechanisms, would help provide further insights.
Declaration of competing interest
None.
Data availability
Data will be made available on request.
Acknowledgment
This work was partially supported by the National Natural Science
Foundation of China (72274175, 71874159) and the Zhejiang Provin­
cial Philosophy and Social Science Planning Project (22NDJC057YB).
Appendix A. Supplementary data
Supplementary data to this article can be found online at https://doi.
org/10.1016/j.ijpe.2023.108933.
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