Game-Theoretic Analysis of Policy Impacts in Competition Between Reverse Supply Chains Involving Traditional and E-Channels
Authors: Aghaei Asra , Cai Fulin , Wu Teresa 
Published: February 2025

Smart cities aim to enhance the quality of life by advancing infrastructure, leveraging technology, and promoting sustainability, balancing environmental, societal, and economic needs for long-term efficiency. Given resource scarcity and environmental regulations, advanced supply chains play a crucial role in developing smart cities by adopting the circular economy concept, which emphasizes maximizing resource efficiency through recycling and remanufacturing. This study delves into the competition between two types of supply chains in the context of reverse logistics: the hybrid supply chain, which utilizes a dual channel including traditional and e-channels for collecting used products, and the traditional supply chain, which relies solely on a traditional channel. Both supply chain models are actively involved in remanufacturing and recycling used products, and each considers varied policies, including incentive-based policies, advertising investments, the acceptance return quality level, the return processing time, and transportation investments, to enhance their performance. Specifically, this research has two primary objectives: (1) evaluating the economic and environmental outcomes across three competitive scenarios, and (2) analyzing the impact of varied policy settings on these outcomes. These objectives frame the analysis of optimal incentive values, return rates, and profitability across the Nash equilibrium and Nash–Stackelberg structures, providing insights into both the strategic and policy dimensions of supply chain operations. The findings indicate that a hybrid supply chain in this case achieves higher return rates and profitability, highlighting the success of its dual-channel strategy and associated policies. Regarding economic goals, both supply chains achieve the highest profits under the Nash–Stackelberg traditional supply chain leadership structure. However, for environmental goals, the traditional supply chain favors Nash equilibrium for higher return rates, while the hybrid supply chain prefers Nash–Stackelberg with traditional leadership. These scenario-specific results emphasize the importance of aligning economic and environmental goals through tailored strategies. A sensitivity analysis, supported by Pareto prioritization, identifies the return quality level and processing time as critical for the hybrid supply chain, and advertisement investments and the return processing time as key for the traditional supply chain. These insights suggest that H-SCs should prioritize stricter quality standards, efficient inspection protocols, and automation (e.g., AI or optical scanning) to improve the quality and processing time efficiency. Meanwhile, T-SCs should focus on advertising traditional channels by emphasizing faster processing time and less restrictive quality standards, while adopting automated time management strategies similar to H-SCs to enhance engagement and profitability. These findings show that by integrating smart city internet-based initiatives and managing related policies, supply chains can enhance circular economy objectives by optimizing both the economic and environmental performance, ultimately fostering more resilient and sustainable supply chains.