Remanufacturing strategy with design for the environment under asymmetric demand information

The encroachment of a remanufacturer not only intensifies market competition but also affects the manufacturer’s adoption of Design for the Environment (DfE) in its product manufacturing process. Although the manufacturer typically holds an information advantage regarding market demand and is therefore expected to respond readily to the remanufacturer’s encroachment, the specific interaction mechanisms remain unclear. Motivated by this observation, we examine the implications of remanufacturer encroachment in the presence of both DfE and asymmetric demand information. By developing a signaling game model, we derive several insightful findings. First, contributing to the ongoing debate on the impact of remanufacturing, this study supports the negative view by demonstrating that encroachment by an independent remanufacturer (IR) consistently reduces the profit of the independent manufacturer (IM), irrespective of the information structure. Second, contrary to conventional wisdom, the IR may benefit from being informationally disadvantaged, achieving higher profits than under a full-information scenario. This finding offers a novel perspective for the informed IM: by sharing information, the IM can prevent the IR from making quantity decisions that would inadvertently intensify competition. Third, through numerical analysis with data from parameter values that are in line with reality, we find that the dual signal mechanism may be more beneficial for the IM than the single signal mechanism. Taken together, these findings underscore the need for remanufacturing stakeholders to carefully evaluate the multifaceted effects of DfE on IR behavior and to fully account for the critical role of information structure in strategic interactions.