Outsourcing or Licensing? Remanufacturing Mode Selection in the Presence of Technological Innovation

Nowadays, remanufacturing has attracted widespread attention. Many original equipment manufacturers (OEMs) collaborate with third-party remanufacturers (TPRs) through outsourcing or licensing mode, while simultaneously investing in technological innovation. This study develops a supply chain consisting of an OEM and a TPR to examine how innovation decision interacts with remanufacturing mode choices. Using game-theoretical analysis, we first derive the equilibrium remanufacturing strategies under outsourcing and licensing modes. Three strategies may arise: no remanufacturing, partial remanufacturing, and full remanufacturing, corresponding to none, partial, and complete reuse of recycled products from the previous period. We show that under the outsourcing mode, partial remanufacturing cannot be sustained when consumers' willingness-to-pay for remanufactured products is sufficiently high. Then, we analyze the innovation incentives and find that outsourcing better fosters technological innovation when the new-product production cost is moderate, whereas licensing is preferable otherwise. Moreover, when the equilibrium strategy shifts to full remanufacturing, the technological innovation level counterintuitively increases with the new-product production cost under both modes. Finally, we demonstrate that the OEM's optimal remanufacturing mode depends jointly on consumers' valuation of remanufactured products and new-product production cost, which challenges the conventional wisdom. Furthermore, we find that outsourcing achieves superior environmental performance, while consumer surplus is higher under outsourcing when the new-product production cost is moderate or extremely large. The robustness of technological innovation decisions and remanufacturing mode choices is verified in an extended model with positive remanufacturing cost. Our findings provide new insights for remanufacturing mode selection incorporating technological innovation.