Demand signal transmission in a certified refurbishing supply chain : rules and incentive analysis

Abstract

Retailers, who sell certified refurbished products, usually have accumulated big data on demand properties, and hence, hold demand signal advantages over the other supply chain parties. In practice, we observe that this signal might be voluntarily shared to a rival who sells regular products. We are therefore interested in the incentives of demand signal transmission of the retailer selling certified refurbished products, and the value of an accurate signal for the other supply chain parties, especially in a one-to-two supply chain comprising a manufacturer (producing both regular and certified refurbished products) and two retailers (selling regular and certified refurbished products, respectively). We formulate the two retailers’ competition and demand signal properties, and find that it is of the best interest for the manufacturer to produce two products, regardless of the possible downstream competition. We derive interesting demand signal transmission rules that the retailer selling certified refurbished products would voluntarily transmit the signal to the retailer (the rival) selling regular products, while it will not transmit the signal to the upstream manufacturer (the business partner). Even if the retailer selling regular products obtains the signal, it will not transmit the signal to the manufacturer either. We discuss the resulting insights regarding the production cost reduction, the government subsidy, and the product quality improvement. We find that the signal transmission rule is robust, and the retailers’ profits may be reduced by the quality improvement of the certified refurbished product.