Competitive advantage through take-back of used products
Motivated by a recent antitrust ruling against HillRom, one of the two dominant American suppliers of hospital beds, we develop a stylized model to investigate the consequences of used product take-back on firms, industry and customers. Our findings suggest that by taking back and reselling refurbished products, a manufacturer can increase both profit margins and salesto the detriment of a non-interfering competitor. In our model, customers are always better off under product take-back, but it depends on the degree of competition, whether firms use the benefits of take-back primarily to increase their margins or to pass them on to the customers by lowering their prices. The first firm to offer take-back, in some cases, can deter its competitors from following this profitable strategy, especially if it has an existing advantage in terms of lower production cost or higher market share. Contrary to the claim of HillRom's competitor, we find a legitimate business justification for HillRom's reduction of new product prices.
product take-back supply chain management secondary markets of durable goods remanufacturing