Coordinating a closed-loop supply chain using a bargaining power approach

Coordinating a vertically separated channel by means of contracting mechanisms has been extensively researched. This study investigates the performance of two commonly used contracting mechanisms: the wholesale price contract and the revenue-sharing contract in coordinating a closed-loop supply chain that consists of two competing channels in the market: a manufacturing and a remanufacturing supply chain. This study formulates the problem as multi-variable optimisation models under centralised, non-cooperative decentralised, and cooperative decentralised regimes using a bargaining power theory. We carried out equilibrium analyses and in-depth numerical studies. Results show that the two contracts are mathematically equivalent under cooperative contracting schemes. The proposed mechanisms coordinate the dual competing channels, improve supply chain efficiency, and achieve Pareto improvements among channel participants. Especially when the two competing products are highly substitutable in the market, the system-wide profit increment is significant by applying the contracting schemes in the decentralised setting.