The effect of remanufacturing on procurement decisions for resellers in secondary markets

The role of remanufacturing as a competitive tool for firms has been reflected in a number of studies to show that remanufacturing can reduce the unit cost of production by reusing components. However, the fact that remanufacturing can be used as a strategic tool for serving secondary markets as well has not been acknowledged in the literature. In this paper, we study the use of remanufacturing as a tool to serve secondary markets. Specifically, we model the case of a reseller who procures used products based on an older generation of technology from an advanced market and then uses one of two options: (a) she can either resell a small fraction of these used products in a developing market where the technology is acceptable, or (b) she can invest in the remanufacturing of these products and then sell them in the developing market at a higher price. The main result of the paper is that using remanufacturing to serve secondary markets reduces the number of units procured from the advanced market for the reseller. In addition, we show based on certain cost structures that the reseller is always better off if she uses remanufacturing to a certain extent.