The prices and quality of new and remanufactured products in a new market segment

Abstract This paper studies the optimal prices and quality of new and remanufactured products, and especially discusses the quality adjustment of the original equipment manufacturer (OEM) in a new market segment that consists of the indifferent segment and the new product only segment. Consumers in the first segment have the same willingness to pay for new and remanufactured products, while consumers in the second segment are only willing to purchase new products. We use the proportion of consumers in the indifferent segment accounting for all consumers to segment the market. We present game models and employ backward induction to derive the optimal prices and quality in three scenarios: the monopolist OEM no‐remanufacturing, the monopolist OEM remanufacturing, and an OEM no‐remanufacturing but an independent remanufacturer (IR) remanufacturing. When the OEM or the IR remanufactures, we find that the OEM cannot lower the product quality. In addition, we compare the optimal quality between the unsegmented and segmented market for each scenario. The results show the OEM should increase its product quality under certain conditions after the OEM realizes that there is a segmented market. Furthermore, we conduct numerical analyses to discuss the impact of related parameters on practitioners’ profits, which provides more guidelines for practitioners.