Two-sided competition with vertical differentiation in both acquisition and sales in remanufacturing

Abstract

We study the competition between two remanufacturers in the acquisition of used products and the sales of remanufactured products. One firm has a market advantage; we consider two separate cases where either firm could have an acquisition advantage. The problem is formulated as a simultaneous game on a market that is vertically differentiated in both acquisition and sales, where both firms decide on their respective acquisition prices for used products, and selling prices for remanufactured products. A key finding is that a market advantage is significantly more powerful than an acquisition advantage. The firm with a market advantage can preempt the entry of the other firm, even if that firm has a significant acquisition advantage, but not the other way around. This is accomplished through an aggressive acquisition strategy, where the firm with a market advantage sets significantly higher acquisition prices.