A game-theoretic approach for pricing in a closed-loop supply chain considering product exchange program and a full-refund return policy: a case study of Iran

The increasing rate of manufacturers and consequently the production of the products gave rise to an increase in used products. The growth in old goods, as well as their negative environmental and social consequences, prompted supply chain operators to focus more on reverse logistics for collecting and reusing these items. However, there are a few key issues that should be handled in this manner, covering how to implement an effective collecting plan. What categories of used items should be collected? And how should they be handled for the aim of reusing them? To address these questions, the pricing issues are investigated in a CLSC with a manufacturer and two retailers. As an effective collection strategy, the first retailer, along with selling new products, benefits from the product exchange program (PEP). In this program, the retailer, by offering two types of discounts on a new product’s price, is able to collect two types of products, including those without and with useful lifetime left as the first- and second-category products, respectively. In terms of used products management, the first-category products are sent to the manufacturer for recycling, and the second-category ones are sold as second-hand products by the first retailer. Besides, the first retailer exercises a full refund return policy, where the returned defective products, after being remanufactured by the manufacturer, are sold to customers by the second retailer in the secondary market. With respect to buy back price of first-category products from the first retailer, two scenarios are considered: 1) the manufacturer pays as much as the difference between the original retail price and discounted retail price in order to encourage the retailer to offer exercise the PEP for returned used items, or 2) by considering the discount on wholesale price, the manufacturer pays as much as the difference between the original wholesale price and discounted wholesale price. In this study, a real-world case study is considered based on an Iranian automotive industry to understand the issue better and obtain practical results. The findings show that the second scenario is more profitable due to lower selling prices and greater demand rates. It is proved that the PEP along with providing environmental benefits can improve supply chain financial profit even for the first or the second-category products.