Optimal trade-in and warranty period strategies for new and remanufactured products under carbon tax policy

Abstract

In the context of remanufactured products with low production and carbon emission costs, manufacturing firms that produce and sell new and remanufactured products need to choose whether or not to offer trade-in service only for remanufactured products. To address this challenge, this paper investigates the optimal trade-in and warranty period strategies of a firm subject to carbon tax and trade-in subsidies policies. According to the firm’s trade-in choices, we develop two theoretical models: model TIA (Trade-in services are offered for all products) and model TIR (Trade-in service is only available to remanufactured products). The results offer some managerial insights. TIA and TIR may be a firm’s optimal trade-in choice under certain conditions; furthermore, the optimal trade-in service choice is not always benefit consumers. The results show that trade-in strategies have no effect on warranty period strategies, while a firm does not take warranty periods into consideration is more likely to choose TIR rather than TIA. A firm in TIR can curb carbon emissions more effectively. Interestingly, trade-in subsidies are not necessarily conducive to curbing total carbon emissions. We also present several quantitative examples, and find that consumers’ increased acceptance of the remanufactured product does not always benefit the firm.

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