Closed Loop SC 1

Hindawi
Mathematical Problems in Engineering

Volume 2020, Article ID 5750370, 22 pages
https://doi.org/10.1155/2020/5750370
Research Article
Pricing Decisions in a Competitive Closed-Loop Supply Chain with
Duopolistic Recyclers
Doo Ho Lee
Division of Software, Media, and Industrial Engineering, Kangwon National University, 346 Joongang-ro, Samcheok-si,
Gangwon-do 29513, Republic of Korea
Correspondence should be addressed to Doo Ho Lee; [email protected]
Received 5 February 2020; Accepted 7 March 2020; Published 18 April 2020
Guest Editor: Shib Sankar Sana
Copyright © 2020 Doo Ho Lee. This is an open access article distributed under the Creative Commons Attribution License, which
permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
In this study, we consider a three-echelon closed-loop supply chain consisting of a manufacturer, a collector, and two duopolistic
recyclers. In the supply chain, the collector collects end-of-life products from consumers in the market. Then, both recyclers
purchase the recyclable waste from the collector, and each recycler turns them into new materials. The manufacturer has no
recycling facilities; therefore, the manufacturer only purchases the recycled and new materials for its production from the two
recyclers. Under this scenario, price competition between recyclers is inevitable. With two pricing structures (Nash and
Stackelberg) of the leaders group and three competition behaviors (Collusion, Cournot, and Stackelberg) of the followers group,
we suggest six different pricing game models. In each of them, we establish a pricing game model among the members, prove the
uniqueness of the equilibrium prices of the supply chain members, and discuss the effects of competition on the overall supply
chain’s profitability. Our numerical experiment indicates that as the price competition between recyclers intensifies, the supply
chain profitability decreases. Moreover, the greater the recyclability degree of the waste is, the higher the profits in the supply
chain become.
1. Introduction The supply chain is an important branch of operational

management, and it has a significant impact on the envi-
Over the past few decades, profitability improvements and ronment through hazardous gas emission and pollution.
cost leadership have been the main goals of supply chain Companies in various industries are now attempting to
management. However, more recently, the increasing minimize their environmental impacts by integrating en-
rates of environmental degradation and resource deple- vironmental issues into their supply chain operations. The
tion triggered by rapid industrialization have shifted this integration of environmental issues into supply chain
focus to socioenvironmental issues; in the context of management practices is referred to as green supply chain
supply chain research, this has led to more concern about management [5–8]. Green supply chain has become an
sustainability, with the concept of supply chain sustain- important research topic in academia and industry. This
ability emerging [1]. For many industries, supply chain topic includes environmental management such as eco-
sustainability is one of the most critical tasks of their friendly product/service designs, green purchasing, reuse,
operations and long-term planning. In addition to busi- remanufacturing, and recycling [9–11]. Among these solu-
ness performance of the supply chain, environmental and tions, recycling and reuse are considered more desirable
social effects of the supply chain have been increasingly because they require less of a quality-of-life compromise of
perceived as critical aspects of supply chain performance the type closely linked to intensive material consumption
by shareholders. As a result, sustainable supply chain [12]. Many countries have been promoting the policies
management has become one of the main interests of related to the economic resource circulation. For example,
business managers and stakeholders [2–4]. Japan has been encouraging what is termed a sound
2 Mathematical Problems in Engineering
material-cycle society by implementing the 3R (reduce, approximately 12.3 million tonnes in Europe [19]. In light of
reuse, and recycle) strategy [13]. Material and energy flows this fact, the recyclability of WEEE plays a key role not only in
must become part of an increasingly sustainable and circular terms of environmental protection but also with regard to the
economy, a concept introduced by the European Union as stable supply and demand for various ICT products.
follows: In a circular economy, the value of products and Based on these observations, this paper deals with a
materials is maintained for as long as possible. Waste and closed-loop supply chain in which two recyclers compete
resource use are minimized, and when a product reaches the with each other. More specifically, each recycler purchases
end of its life, it is used again to create further value. This can recyclable waste from a collector, recycles the waste, and
bring major economic benefits, contributing to innovation, finally sells the recycled materials to a manufacturer. In this
growth, and job creation. In 2018, Apple announced that the process, the two recyclers compete with regard to the selling
2018 models of its MacBook Air and Mac mini would both prices of their recycled materials. The aim of this study is to
be manufactured with 100 percent recycled aluminum. investigate pricing and ordering decisions during the waste
Additionally, the Mac mini would be constructed from 60 recycling process in a three-echelon closed-loop supply
percent recycled plastic. chain with duopolistic recyclers using a game-theoretic
Recycling is the process of collecting and processing waste framework. Due to the competition between recyclers, the
that would otherwise be thrown away as trash and turning the price offered by one recycler affects not only the price of the
waste into new products for environmental protection. It also other recycler but also those of all other members in the
includes the optimal management of waste disposal facilities. supply chain. Therefore, demand and profit in the supply
Another aim of recycling is to encourage ecofriendly man- chain are sensitive in all cases to price competition. This
agement and to manage limited supplies of resources. The study proposes several pricing game models based on
supply chain term refers to a type of systematic collaboration pricing structures and competitive behavior. The main re-
between people, processes, and information to create tangible search questions for this study are as follows:
or intangible value and deliver it to consumers. The main
(i) How can each member in the supply chain increase
purpose of supply chain management is to facilitate better
the profit?
material and information flows among stakeholders in the
supply chain. This creates a better relationship between (ii) What are the profits and equilibrium variables of the
stakeholders in the supply chain, which increases the prof- supply chain members?
itability of the entire supply chain [14, 15]. With the depletion (iii) How strong is the effect of the price competition
of resources around the world, waste from end-of-life between recyclers in the supply chain?
products is becoming an important resource that can be (iv) Does the recyclability degree of wastes have a
managed globally. As consumers’ interest in environmental positive effect on the profit of each member in the
issues has increased along with the amounts of waste, in- supply chain?
dustrialists and researchers are now focusing on sustainable (v) Does an imbalance in the market share between
products. Reverse and closed-loop supply chains are well competitors affect the profit of the entire supply
adapted to sustainability goals [16]. Generally, a reverse chain?
supply chain and closed-loop supply chain consist of certain
operations such as collecting recyclable waste, transforming it In order to answer the above questions, we revisit Jafari
into new materials, and transferring these materials to a et al.’s study [20] by considering price competition be-
manufacturer for remanufacturing. A dual channel for col- tween recyclers. The main contributions of this research
lection can also be implemented in the supply chain. are threefold. First, the impact of price competition be-
Sometimes, it is found that dual-channel recycling outper- tween recyclers with different competitive behaviors on
forms single-channel recycling [17, 18]. the sustainability of the supply chain is investigated.
Recyclability is a characteristic of a material that can retain Second, our study concerns the economic as well as en-
useful chemical and/or physical properties after achieving vironmental aspects of the supply chain. Third, we suggest
their original purpose, thus allowing it to be reused or six different pricing game models and show the existence
remanufactured into additional products through a recog- of equilibrium solutions for each game. Finally, we
nized process. Thus, recyclability must be observed and compare the results of the six pricing game models
considered as the baseline during design, production, and through a numerical example.
waste management activities. With the development of in- The rest of this study is organized as follows. In Section
formation and communication technology (ICT), the de- 2, we present a brief overview of the relevant literature,
mand for electronic products has increased greatly, and this after which we introduce the six pricing game models and
has led to more generation of waste electrical and electronic then review the notations used and assumptions in Sec-
equipment (WEEE). The disruption of rare-earth metal ex- tion 3. In Section 4, we conduct a preliminary analysis of
ports to Japan, triggered by the Senkaku Islands dispute in our main results. Section 5 deals with the equilibrium
2010, led to confusion not only in Japan but also in the global quantities for each of the six pricing game models. Var-
market, paradoxically emphasizing the importance of se- ious numerical experiments are conducted in Section 6 to
curing resources. In 2016, the potential recovery of seven investigate the effects of certain parameters on the
precious resources, specifically iron, copper, gold, silver, equilibrium quantities. In Section 6, we give a summary of
aluminum, palladium, and plastics in WEEE, amounts to the paper and provide future research topics.
Mathematical Problems in Engineering 3
2. Literature Review decisions. Their work suggested that the retailer dual-col-
lecting model was the best channel structure for a CLSC. In a
In this section, we review the relevant literature considering dual-reverse-supply chain, consumer preference was con-
the main stream of research studies: recycling issues in the sidered by Feng et al. [17], who assumed a case in which
sustainable supply chains. consumers return used products via three different recycling
The economic and environmental benefits of sustainable channels. Jafari et al. [20] considered a dual-channel recy-
supply chain management have been widely recognized over cling structure through a collector or a recycler. They
the past two decades, and the closed-loop supply chain considered recycling while assuming a smooth waste col-
(CLSC) has therefore attracted significant attention from lection flow, i.e., with no shortcomings occurring on the
both industry and academia. A CLSC consists of a forward collector’s side. They established various Stackelberg game
and a reverse supply chain. The forward supply chain in- models to determine the equilibrium prices for recyclable
volves the movement of products from upstream suppliers waste, recycled materials, and finished products. By con-
to downstream consumers, while the reverse supply chain sidering a more realistic situation of recycling, Giri and Dey
involves the movement of used or end-of-life products from [34] extended the model by Jafari et al. [20] to a CLSC with a
consumers to upstream suppliers [21]. In a CLSC, it is secondary or backup supplier who supplies shortfalls of
suggested that once the products are sold to consumers, the materials to tackle critical situations and obstacles pre-
responsibilities of producers for dealing with sustainability venting the smooth running of the supply chain. Wei et al.
issues should not end. There should be some accountability [35] studied a remanufacturing supply chain with dual-
with regard to the impacts of the products during their collecting channels under a dynamic setting and established
consumption and during the postconsumption phase. Ac- three two-period game models by considering both the
cordingly, waste management programs should be adopted. profit discount and competition between the two collecting
As a result, the linear paradigm of the supply chain becomes channels. Jian et al. [36] explored collaborative collection
circular. Input materials into the CLSC are reduced because effort strategies involving a third-party collector and an
some of the generated waste is retrieved to be reused as e-tailer based on the “internet + recycling” business model.
resources. Hence, the energy and resource dependencies are Nielsen et al. [37] examined the effects of government
reduced without affecting economic growth [22]. The CLSC subsidy policies in a CLSC and suggested that government
stimulates the circulation of resources by slowing, nar- organizations must inspect carefully the product types,
rowing, intensifying, and closing resource loops [23]. From power structures, and investment efficiency before imple-
this point of view, recycling is one of the major avenues used menting any subsidy policies. Saha et al. [38] also dealt with a
to improve waste management systems [12]. Several studies CLSC under the influence of government incentives. They
have investigated this issue. Savaskan et al. [24] dealt with a found that the greening level and used product return rate in
CLSC capable of product collection and recycling and found a CLSC are always higher under retailer-led Stackelberg
that retailer collection is the most effective means of product game.
collection activity for the manufacturer. Savaskan and Van More recently, many studies of corporate social re-
Wassenhove [25] studied the reverse channel design and sponsibility (CSR) in a CLSC have been carried out due to
optimal pricing decisions of a CLSC in which two competing growing consumer interest in environmental protection.
recyclers collect used products. Chen and Sheu [26] de- Modak et al. [39] investigated a socially responsible supply
veloped a differential game model established in view of sales chain with duopolistic retailers, using Cournot and Collu-
competition and recycling dynamics as well as regulation- sion games to demonstrate that a manufacturer’s CSR has a
related profit function. Atasu et al. [27] investigated the significant effect on wholesale prices because intensive CSR
impact of collection cost structures on optimal reverse practice can result in negative wholesale prices. Panda et al.
channel decisions based on the work of Savaskan et al. [24]. [40] developed a socially responsible CLSC with recycling.
Hong et al. [28] investigated three reverse hybrid collection They insisted that the channel’s nonprofit maximizing
channel structures in a manufacturer-oriented CLSC and motive through corporate social responsibility practices
found that the retailer’s and manufacturer’s hybrid collec- generated a higher profit margin than the profit maximizing
tion channel is the most effective. Huang et al. [18] studied objective and that there must be a recycling limit for the
the impacts of recycling competition on pricing and recy- optimal benefit of the channel. Modak et al. [41] examined
cling strategies. They showed that dual-channel recycling the influence of a manufacturer’s social responsibility on the
outperforms a single-channel recycling. A similar problem collection activity of a third party in a CLSC and showed that
with a different end-of-life product collection structure was product recycling is directly affected by the manufacturer’s
studied by Wang et al. [29] and Modak et al. [30, 31]. Modak corporate social responsibility concerns and that there must
et al. proposed a two-echelon duopolistic retailer supply be a recycling threshold for the optimal benefit. Modak and
chain model with a recycling facility by considering the Kelle [42] suggested social work donation (SWD) as a tool of
Cournot and Collusion behaviors of retailers. Saha et al. [32] CSR in a CLSC considering carbon taxes and demand
considered pricing strategies in a dual-channel CLSC under uncertainty. They revealed that SWD is beneficial when used
three systems for the collection of used products: third-party as an investment in CSR activity if the demand has a higher
collection, manufacturer collection, and retailer collection. SWD elasticity parameter than the price sensitivity pa-
Liu et al. [33] studied the dual-recycling channel collection rameter. Dual-channel CLSC coordination under SWD was
to investigate pricing and best reverse-channel choice also analyzed by Modak et al. [43], who asserted that if a
channel recycles used products and has socially concerned Πm : manufacturer’s profit
consumers, then consumers have the power to accelerate Πc : collector’s profit
SWD and recycling simultaneously. An excellent survey on Πri : recycler i’s profit
reverse logistics and CLSC management studies can be
found in Kazemi et al. [44] and the references therein.
Although comprehensive research has been conducted 3.2. Assumptions. In this study, pricing and ordering de-
on recycling and pricing issues in various sustainable supply cisions are investigated on the waste recycling process of a
chains, few studies have investigated price competition three-echelon CLSC. The proposed CLSC consists of one
between recyclers in the recycling market. In this work, we monopolistic manufacturer, one monopolistic collector, and
consider forward and reverse supply chains where recyclable two duopolistic recyclers. Figure 1 depicts the overall
waste, recycled materials, and finished goods flow. From our configuration and the material and cash flows of the in-
pricing decision models, we investigate the effects of price vestigated supply chain.
competition between recyclers on the profits of the members The manufacturer produces finished products which are
in the supply chain and on the total profit of the supply made mainly from recycled wastes. In other words, the
chain. This work also discusses how an imbalance in the manufacturer uses the recycled (raw) materials to produce
market share between recyclers affects the profit of the entire the product. This assumption is reasonable because, in
supply chain. practice, 100% recycled products are now being sold in the
market. For example, Apple’s MacBook Air is made with
100% recycled aluminum. Seventh Generation released
3. Model Description and Assumptions paper towels made from 100% recycled paper. In addition,
3.1. Notations. To model the investigated supply chain, the 100% recycled products are found in many remanufacturing
following notations are used throughout the paper: industries such as footwear (Allbirds), plastic bottle
(Rothy’s), watches (Wewood), and clothing and accessories
Index (Cotopaxi, Recover Brands, and Looptworks) [45]. It was
i: recyclers (i � 1, 2) reported that Looptworks significantly reduces the amount
of garbage in the region and minimizes carbon emissions by
Decision variables working with those who gather manufacturing materials
Pm : selling price of the finished product offered by the from landfills.
manufacturer The manufacturer purchases the recycled materials only
Pri : selling price of the recycled material offered by the from the recyclers. Unlike Jafari et al. [20] and Giri and Dey
recycler i [34], we assume that the manufacturer is not in charge of
Pc : selling price of the recyclable wastes offered by the recycling the wastes. Hence, the manufacturer can obtain the
collector recycled materials directly from the recyclers and then
produce the finished product. Under the considered supply
Parameters chain, the market demand for the finished product is de-
Cp : unit production cost of the finished product to the termined based on the final price charged by the manu-
manufacturer facturer to consumers in the market. We assume that the
Cri : unit recycling cost of the recyclable wastes to the market demand, D, for the finished product is a linear
recycler i function of the selling price, Pm , set by the manufacturer. We
Cc : unit collection cost of the end-of-life product to take D � α − βm Pm , where α and βm indicate the potential
the collector market demand and the price sensitivity of the finished
c: quantity of the recycled materials required to product, respectively. We assume that α, βm > 0 and D > 0.
produce one unit of the finished product (c > 1) The recycler’s main activities are to purchase the recy-
θ: recyclability degree of the wastes (0 < θ < 1) clable waste from the collector and provide the manufacturer
α: potential market demand for the finished product with the recycled materials. We assume that there are two
βm : consumer’s price sensitivity for the finished competing recyclers operating their own recycling facilities.
product The two recyclers sell identical recycled materials to the
βr : manufacturer’s price sensitivity for the recycled manufacturer. We equivalently index the two recyclers by
material i � 1, 2. Each recycler is assumed to employ a uniform
ω: cross-price sensitivity for the recycled material pricing strategy to attract the manufacturer. Thus, the de-
(ω < βr ) mand of the recycled materials is price-dependent and is
δi : market share of the recycler i (0 < δi < 1 and assumed to be a decreasing linear function of the price. Let
􏽐i δi � 1) Dmi denote the demand function of recycler i. Then, Dmi has
the form of
Functions
Dmi � δi c D − βr Pri + ωPrj > 0, i � 1, 2 j � 3 − i, (1)
D: demand faced by the manufacturer
Dmi : quantity ordered by the manufacturer to the where, δi , c, and Pri indicate recycler i’s market share of
recycler i recycling, the quantity of recycled materials required to
Dri : quantity ordered by the recycler i to the collector produce one unit of the finished product, and the price
of the demand from one recycler to the other recycler.

Collector
Therefore, the term ω is a competition parameter between the
two recyclers. As ω increases, the price competition between
the two recyclers in the supply chain becomes more intense.
Recycler 1 Recycler 2 Throughout the paper, it is assumed that βr > ω. The linear
type of the demand function considering the price compe-
tition is assumed in most studies [20, 34, 39, 46, 47].
Manufacturer The collector is responsible for collecting waste in the
form of end-of-life products from consumers. The collected
waste can be classified as either recyclable or nonrecyclable,
and the collector transfers the recyclable waste to the re-
Market cyclers. In this study, the recyclability degree of the waste is
also considered; i.e., it is assumed that only a constant share
Material
of the waste remains after the recycling process operated by
Cash
the recyclers. Let Dri denote the ordering quantity of recycler
Figure 1: Material and cash flow diagram in the closed-loop supply i for the recyclable waste to the collector. Then, Dri is simply
chain with duopolistic recyclers. given by Dri � (1/θ)Dmi > 0 for i � 1, 2, where the term θ
indicates the recyclability degree of the waste. Therefore, the
offered by recycler i, respectively. In equation (1), βr repre- function of the collector’s total demand becomes 􏽐i Dri > 0.
sents the manufacturer’s price sensitivity with regard to the Based on the demand functions of the participants in the
recycled materials. The term ω is the cross-price sensitivity, CLSC considered here, the profit function of each partici-
which reflects the degree of cannibalization between the two pant is obtained by the following equation:
competing recyclers. In other words, ω represents the leakage
Πm � 􏼐Pm − Cp 􏼑D − 􏽘 Pri Dmi ,

i
Πri � Pri Dmi − Pc + Cri 􏼁Dri , i � 1, 2, (2)
Πc � 􏽘 Pc − Cc 􏼁Dri ,
i
where Πm , Πri , and Πc denote the profits of the manufac- In the leaders group, we deal with two pricing structure
turer, the recycler i, and the collector, respectively. Note that types: Stackelberg and Nash. In the Stackelberg pricing
it is useless to study pricing decisions with no positive profits structure, the manufacturer acts as the Stackelberg game leader
of participants in practice; therefore, the following as- and the collector reacts as the follower [48]. In the Stackelberg
sumption must be made: Πm > 0, Πri > 0, and Πc > 0. pricing structure, the manufacturer initializes the selling price
for the finished product and the collector then decides on the
3.3. Decision-Making Structure. This study utilizes game selling price for the recyclable waste based on the manufac-
theory to model the problem of determining the equilibrium turer’s price. In the game theory literature, a Nash game is a
prices of the participants in the investigated CLSC. The simultaneous-move game in which the manufacturer and the
players participating in the six pricing game models (which collector make their decisions simultaneously [49]. In the
are described in the next section) are the manufacturer, the followers group, we deal with three types of competition be-
collector, recycler 1, and recycler 2. These four players are havior: Collusion, Cournot, and Stackelberg. When engaging in
divided into two groups: the leaders group and the followers Collusion behavior, the recyclers cooperatively decide on their
group. We assume that the manufacturer and the collector selling prices, while their selling prices are set competitively
belong to the leaders group and that the two recyclers belong when displaying Cournot behavior [50]. When using Stack-
to the followers group. The basic structure of the pricing elberg behavior, the leader of the two recyclers initially sets the
game model is as follows. The leaders group initially de- price, after which the follower determines its own price based
termines the prices devised by the collector and the man- on the leader’s price. Without a loss of generality, we assume
ufacturer, after which the followers group determines those that recycler 1 (recycler 2) is a leader (follower) throughout the
devised by the two recyclers. This assumption is reasonable paper. Therefore, with the two aforementioned pricing
because, in our setting, there exists price competition be- structures in the leaders group and the three types of com-
tween the two recyclers, and they are under pressure from petition behavior in the followers group, six combinations of
the collector and manufacturer with regard to the demand different pricing game models can be investigated: (i) Nash-
for recyclable waste and the supply of recycled materials, Collusion, (ii) Nash-Cournot, (iii) Nash-Stackelberg, (iv)
respectively. Therefore, the decision power of the leaders Stackelberg-Collusion, (v) Stackelberg-Cournot, and (vi)
group is greater than that of the followers group. Stackelberg-Stackelberg. Figure 2 illustrates the six different
Leaders group
Stackelberg Nash
The manufacturer is a leader and it

initially sets its selling price. The
The collector
manufacturer
optimizes its
optimizes its
selling price to
selling price to
The collector is a follower. Based on maximize its
maximize its
the manufacturer’s price, the profit.
profit.
collector determines its selling price.
Collusion Cournot Stackelberg
Recycler 1 is Recycler 2 is Recycler 1 is a leader and it initially

competing for competing for sets its selling price.
Recycler 1 and 2 collude with each
price with price with
other to determine their selling prices
Recycler 2. Recycler 1.
based on the selling prices of the
They decide They decide Recycler 2 is a follower. Based on
leaders group.
the prices the prices recycler 1’s price, recycler 2
independently. independently. determines its selling price.
Followers group
Figure 2: Conceptual framework of pricing game models in the dual-channel recycling supply chain.
pricing game models. In the next sections, we develop the For the recyclers’ equilibrium prices, we have the fol-
mathematical programming and prove the uniqueness of the lowing proposition.
four players’ prices for each pricing game model.
Proposition 1. Given the values of the manufacturer’s price,
4. Preliminaries: Pricing Behaviors in the Pm and the collector’s price Pc , in the Collusion behavior, there
Followers Group exists a unique equilibrium under the recycler i’s price, PCL ri :
Pc + Cri K􏼐βr δi + ωδj 􏼑

In this section, we discuss the three competition behaviors of PCL
ri � + , for i � 1, 2, j � 3 − i,
the recyclers in the followers group and obtain the pre- 2θ 2θ􏼐β2r − ω2 􏼑
liminary results for the next section. (4)
where K � cθ(α − βm Pm ).
4.1. Collusion Behavior in the Followers Group. In the Col-
lusion behavior, the recyclers collude with each other to set Proof. We consider the following Hessian matrix of the
their prices for recycled materials. More specifically, the objective function in RPCL :
Collusion behavior is similar to the case in which the two
recyclers recognize their interdependence and agree to act in z2 Πrt z2 Πrt
⎡⎢⎢⎢ ⎤⎥
union in order to maximize the total profit of the recycling ⎢⎢⎢ zP2r1 zPr1 zPr2 ⎥⎥⎥⎥⎥
⎢⎢⎢ ⎥⎥⎥ ⎡⎢ − 2βr ω ⎥⎤
market. Note that the two recyclers cooperate in pricing but HCL
r � ⎢⎢⎢⎢ ⎥⎥⎥ � ⎢⎣
⎥⎥⎥
⎥⎦. (5)
still compete in selling. The total profit of the recyclers, Πrt , ⎢⎢⎢ 2 ⎥⎥⎥
⎢⎢⎣ z Π 2
z Πrt ⎦ ω − 2βr
rt
in the Collusion behavior can be formulated as follows:
Πrt � Πr1 + Πr2 . Hence, the recyclers’ pricing problem, RPCL zPr2 zPr1 zP2r2
in the Collusion behavior can be formulated as follows: We define ΔCLk as the leading principal minor of order k
CL
RP : max Πrt Pr1 , Pr2 􏼁 � 􏽐 Pri Dmi 􏼁 − Pc + Cri 􏼁Dri in HCL
r . We then find that ΔCL
1 � − 2βr < 0 and Δ2
SCL
� 4β2r −
(Pr1 ,Pr2 )∈R2+ i ω > 0 because we assume that βr > ω. Therefore, HCL
2
is
r
s.t. Πrt Pr1 , Pr2 􏼁 > 0. negatively definite, implying that Πrt is strictly concave in
(3) the feasible region and that the stationary point of Πrt
becomes the global maximizer of RPCL . Consequently, given
the competitor’s price, each recycler can find its own pricing follower. With this assumption, recycler 1’s decision power
strategy by setting zΠrt /zPri � 0 for i � 1, 2: and market share are greater than those of recycler 2. Ac-
βr Pc + Cr1 􏼁 − ω Pc + Cr2 􏼁 + 2θωPr2 + Kδ1 cordingly, it is natural to assume that δ1 ≥ δ2 . Then, recycler
Pr1 � , i’s pricing model, RPST i , in the Stackelberg behavior is
2βr θ
modeled as follows:
(6)
β P + Cr2 􏼁 − ω Pc + Cr1 􏼁 + 2θωPr1 + Kδ2 RPST
2 : max Πr2 Pr2 􏼁 � Pr2 Dm2 − Pc + Cr2 􏼁Dr2
Pr2 � r c . Pr2 ∈R+
2βr θ
s.t. Πr2 Pr2 􏼁 > 0,
Solving the equations system in equation (6) leads to
RPST
1 : max Πr1 Pr1 􏼁 � Pr1 Dm1 − Pc + Cr1 􏼁Dr1
equation (4). This completes the proof. □ Pr1 ∈R+
Pr2 ∈ arg max Πr2 Pr2 􏼁

4.2. Cournot Behavior in the Followers Group. The Cournot s.t.
Πr1 Pr1 􏼁 > 0.
behavior forces the recyclers to decide on their prices si-
multaneously. In other words, each recycler independently (10)
sets its price by assuming its competitor’s selling price as a For the sequential game above, we have the following
parameter. Hence, recycler i’s pricing problem, RPCT i , proposition.
considering price competition is modeled as follows:
RPCT
i : max Πri Pri 􏼁 � Pri Dmi − Pc + Cri 􏼁Dri Proposition 3. Given the values of Pm and Pc , in the
Pri ∈R+
(7) Stackelberg behavior, there exists a unique equilibrium under
s.t. Πri Pri 􏼁 > 0. recycler i’s price, PST
ri :
Pc + Cr1 βr ω Pc + Cr2 􏼁 + K 2βr δ1 + ωδ2 􏼁
For the recyclers’ equilibrium prices, we have the fol- PST
r1 � + ,
lowing proposition. 2θ 2θ􏼐2β2r − ω2 􏼑
(11)
Proposition 2. Given the values of Pm and Pc , in the ωPST P + Cr2 Kδ2
PST
r2 � r1
+ c + .
Cournot behavior, there exists a unique equilibrium under the 2βr 2θ 2θβr
recycler i’s price, PCT
ri :
K􏼐2βr δi + ωδj 􏼑 + βr 􏽨2βr Pc + Cri 􏼁 + ω􏼐Pc + Crj 􏼑􏽩 Proof. The second-order derivative of the objective function
PCT
ri � , 2
θ􏼐4β2r − ω2 􏼑 in RPST 2
2 is given by z Πr2 /zPr2 � − 2βr < 0. Therefore, Πr2 is
strictly concave with respect to (w.r.t.) Pr2 and, by solving
for i � 1, 2, j � 3 − i. zΠr2 /zPr2 � 0, the global maximizer of Πr2 is obtained as
ωPr1 Pc + Cr2 Kδ2
(8) PST
r2 � + + . (12)
2βr 2θ 2θβr
Proof. The second-order derivative of the objective function By integrating PST ST

r2 in equation (12) into RP1 , it follows
2 2 2 2
in RPCT 2 2 that z Πr1 /zPr1 � − (2βr − ω )/βr < 0. Hence, Πr1 is also
i is given by z Πri /zPri � − 2βr < 0, for i � 1, 2. Hence,
each recycler’s profit function is strictly concave on its own strictly concave w.r.t, Pr1 and, by solving zΠr1 /zPr1 � 0, the
decision and there exists a unique equilibrium price for each equilibrium solution of RPST 1 is given by
recycler. Consequently, given the competitor’s price, each Pc + Cr1 βr ω Pc + Cr2 􏼁 + K 2βr δ1 + ωδ2 􏼁
recycler can find its own pricing strategy by setting PST
r1 � + . (13)
2θ 2θ􏼐2β2r − ω2 􏼑
zΠri /zPri � 0 for i � 1, 2:
βr Pc + Cr1 􏼁 + θωPr2 + Kδ1 This completes the proof. □
Pr1 � ,
2θβr
(9) 5. Development of the Six Pricing Game Models
β P + Cr2 􏼁 + θωPr1 + Kδ2
Pr2 � r c . In this section, we present the main results of this paper. Six
2θβr different pricing game models are carefully analyzed one by
Solving the equations system in equation (9) leads to one.
equation (8). This completes the proof. □
5.1. Nash Game Structure in the Leaders Group. The Nash
game structure is a simultaneous-move game in which the
4.3. Stackelberg Behavior in the Followers Group. In the
manufacturer and the collector make their decisions
Stackelberg behavior, also known as a sequential game, the
simultaneously.
leader of the game initially sets the price and the follower
then determines its own price based on the leader’s price. As
noted in Section 3, we assume that recycler 1 acts as the 5.1.1. Nash-Collusion Model. In the Nash-Collusion game
Stackelberg leader while recycler 2 acts as the Stackelberg model, which is denoted by NCL, a Nash game is played
between the collector and the manufacturer, while the re- 2Cc − Cr1 − Cr2 K
cyclers collude with each other to set the prices for recycled Pc � + ,
4 4 βr − ω􏼁
materials. In the first stage of the NCL model, the manu-
facturer and the collector announce their sales prices si- 2􏼐α − βm Cp 􏼑􏼐β2r − ω2 􏼑
multaneously. Based on this, in the second stage, the Pm � β−m1 ⎡⎢⎣α − ⎤⎥⎦.
recyclers cooperate in terms of pricing with each other and 4􏼐β2r − ω2 􏼑 + c2 βm 􏼐2ωδ1 δ2 + βr 􏽐i δ2i 􏼑
set their prices to maximize the sum of their profits. (18)
According to Proposition 1, we know that the total profit of
the recyclers, Πrt is strictly concave with respect to the Solving equation (18) simultaneously leads to equation
recyclers’ prices, Pr1 and Pr2 , and the equilibrium price of (16). This completes the proof. □
recycler i in the NCL model is expressed as
By the backward induction, the equilibrium prices of the
P + Cri K􏼐βr δi + ωδj 􏼑 recyclers in the NCL model are determined as follows:
PNCL
ri � c + , for i � 1, 2, j � 3 − i.
2θ 2θ􏼐β2r − ω2 􏼑 NCL
PNCL + Cri cθ α − βm Pm 􏼁􏼐βr δi + ωδj 􏼑
(14) PNCL
ri � c
+ ,
2θ 2θ􏼐β2r − ω2 􏼑 (19)
With recyclers’ prices in equation (14), the collector’s pricing
problem, CPNCL , and the manufacturer’s pricing problem, for i � 1, 2, j � 3 − i.
MPNCL , are formulated as follows:
CPNCL : max Πc Pc 􏼁 � 􏽘 Pc − Cc 􏼁Dri
Pc ∈R+
i
5.1.2. Nash-Cournot Model. In the Nash-Cournot game
s.t. eq. (14)
model, which is denoted by NCT, a Nash game is played
Πc Pc 􏼁 > 0, between the collector and the manufacturer, with the
MPNCL : max Πm Pm 􏼁 � 􏼐Pm − Cp 􏼑D − 􏽘 Pri Dmi Cournot behavior displayed by the two recyclers. In the first
Pm ∈R+
i stage of the NCT model, the manufacturer and the collector
s.t. eq.(14) announce their sales prices simultaneously. Based on this, in
Πm Pm 􏼁 > 0. the second stage, the equilibrium prices of the two recyclers
(15) are simultaneously and independently obtained. According
to Proposition 2, the equilibrium price of recycler i in the
Proposition 4 states the result of the NCL pricing game NCT model is expressed as
model.
K􏼐2βr δi + ωδj 􏼑 + βr 􏽨2βr Pc + Cri 􏼁 + ω􏼐Pc + Crj 􏼑􏽩
PNCT
ri � ,
Proposition 4. In the Nash-Collusion pricing game model, θ􏼐4β2r − ω2 􏼑
there exists a unique Nash equilibrium under the collector’s
price, PNCL
c , and the manufacturer’s price, PNCL
m : for i � 1, 2, j � 3 − i.
2Cc − Cr1 − Cr2 cθ􏼐α − βm Cp 􏼑 βr + ω􏼁 (20)
PNCL
c � + ,
4 8􏼐βr − ω2 􏼑 + 2c2 βm 􏼐2ωδ1 δ2 + βr 􏽐i δ2i 􏼑
2
With the recyclers’ equilibrium prices in equation (20), the
collector’s and the manufacturer’s pricing games are for-
α 2􏼐α − βm Cp 􏼑􏼐β2r − ω2 􏼑 mulated as follows, respectively,
PNCL
m � − .
βm 4βm 􏼐β2r − ω2 􏼑 + c2 β2m 􏼐2ωδ1 δ2 + βr 􏽐i δ2i 􏼑
CPNCT : max Πc Pc 􏼁 � 􏽘 Pc − Cc 􏼁Dri
Pc ∈R+
(16) i
s.t. eq.(20)
Proof. From the objective functions in CPNCL and MPNCL , Πc Pc 􏼁 > 0,
their second-order derivatives are given by, respectively,
MPNCT : max Πm Pm 􏼁 � 􏼐Pm − Cp 􏼑D − 􏽘 Pri Dmi
z2 Πc 2 βr − ω􏼁 Pm ∈R+
i
�− < 0,
zPc 2
θ2 s.t. eq.(20)
(17)
2
z Πm
2
c βm 􏼐2ωδ1 δ2 + βr 􏽐i δ2i 􏼑 Πm Pm 􏼁 > 0.
⎢
� − βm ⎡
⎣2 + ⎤⎥⎦ < 0.
2
zPm 2􏼐β2r − ω2 􏼑 (21)
Therefore, the collector’s and the manufacturer’s profit The following proposition pertains to the results of the
functions are both strictly concave on their own decision var- NCT model.
iables and there exist unique equilibrium prices for the collector
and the manufacturer. Consequently, the collector and the Proposition 5. In the Nash-Cournot pricing game model,
manufacturer can find their own pricing strategies by solving the there exists a unique Nash equilibrium under the collector’s
first-order conditions of zΠc /zPc � 0 and zΠm /zPm � 0: price, PNCT
c , and the manufacturer’s price, PNCT
m .
Proof. From the objective functions in CPNCT and MPNCT , zΠm /zPm � 0, the collector’s equilibrium price, PNCT
c , and
their second-order derivatives are given, respectively, by the manufacturer’s equilibrium price, PNCT
m , are obtained.
z2 Πc 4β β − ω􏼁 This completes the proof. □
2
� − 2r r < 0,
zPc θ 2βr − ω􏼁 The explicit expressions of PNCT and PNCT are long and
c m
(22) complicated. Instead, we present a brief version of the
z2 Π m solving procedure of the NCT model in Appendix A.
� − 2βm 1 + X1 􏼁 < 0,
zP2m
where 5.1.3. Nash-Stackelberg Model. In the Nash-Stackelberg
game model, which is denoted by NST, a Nash game is played
c 2
βm βr 􏽨8ωβr δ1 δ2 + 􏼐4β2r − ω 2
􏼑􏽐i δ2i 􏽩 between the collector and the manufacturer, while a Stack-
X1 � 2 > 0. (23)
􏼐4β2r − ω2 􏼑 elberg game is played between the two recyclers. In the first
stage of the NST model, the manufacturer and the collector
Note that the collector’s and the manufacturer’s profit announce their sales prices simultaneously. Based on this, in
functions are both strictly concave on their own decision the second stage, recycler 1 determines its sales price. In the
variables. Thus, there exist unique Nash equilibrium prices third stage, following recycler 1’s price, recycler 2 makes a
for the collector and the manufacturer. Consequently, by further pricing decision. By considering the Stackelberg be-
solving the first-order conditions, zΠc /zPc � 0 and havior of the recyclers, their prices are already known as
Pc + Cr1 βr ω Pc + Cr2 􏼁 + K 2βr δ1 + ωδ2 􏼁

PNST
r1 � + ,
2θ 2θ􏼐2β2r − ω2 􏼑
(24)
ωPNST P + Cr2 Kδ2
PNST
r2 � r1
+ c + .
2βr 2θ 2θβr
Therefore, with (23), the collector’s pricing problem, Proposition 6. In the Nash-Stackelberg pricing game model,
CPNST , and the manufacturer’s pricing problem, MPNST , are there exists a unique Nash equilibrium under the collector’s
formulated as follows, respectively, price, PNST NST
c , and the manufacturer’s price, Pm .
CPNST : max Πc Pc 􏼁 � 􏽘 Pc − Cc 􏼁Dri
Pc ∈R+
i Proof. The second-order derivative of Πc w.r.t. Pc is given by
s.t. eq.(24)
z 2 Πc βr − ω􏼁􏽨8β3r − ω3 + βr ω 4βr − 3ω􏼁􏽩
Πc Pc 􏼁 > 0, � − . (26)
NST
zP2c 2θ2 βr 􏼐2β2r − ω2 􏼑
MP : max Πm Pm 􏼁 � 􏼐Pm − Cp 􏼑D − 􏽘 Pri Dmi
Pm ∈R+
i
From the fact that βr > ω ⟹ 8β3r > ω3 and 4βr > 3ω, it is
s.t. eq.(24) easy to show that z2 Πc /zP2c < 0. Therefore, Πc is strictly
Πm Pm 􏼁 > 0. concave w.r.t. Pc . The second-order derivative of Πm w.r.t.
(25) Pm is also given by z2 Πm /zP2m � − 2βm (1 + X2 ), where
Proposition 6 states the result of the NST pricing game

model.
c2 βm 􏽮4β2r 􏽨δ21 􏼐2β2r − ω2 􏼑 + δ22 􏼐4β2r − ω2 􏼑􏽩 + 4βr ωδ1 δ2 􏼐8β2r − ω2 􏼑 + 8β4r δ21 − ω4 δ22 􏽯
X2 � 2 . (27)
16βr 􏼐2β2r − ω2 􏼑
Upon the assumption that δ1 ≥ δ2 , it follows that equilibrium price, PNST

c , and the manufacturer’s equilib-
8β4r δ21 − ω4 δ22 ≥ δ22 (8β4r − ω4 ) > 0. Therefore, we have the rium price, PNST
m , are obtained. This completes the
following relationship: δ1 ≥ δ2 ⟹X2 > 0⟹z2 Πm /zP2m < 0. proof. □
Thus, Πm is also strictly concave w.r.t. Pm and there exist
unique Nash equilibrium prices for the collector and the The explicit expressions of PNST
c and PNST
m are long and
manufacturer. Consequently, by solving the first-order complicated. Instead, we present a brief version of the
conditions, zΠc /zPc � 0 and zΠm /zPm � 0, the collector’s solving procedure of the NST model in Appendix A.
5.2. Stackelberg Game Structure in the Leaders Group. In the Proposition 7. Given the value of Pm , there exists a unique
Stackelberg game structure, the manufacturer acts as a equilibrium solution, PSCL
c , which maximizes the collector’s profit:
Stackelberg game leader and the collector reacts as the follower. 2C − Cr1 − Cr2 K
PSCL
c � c + . (30)
4 4 βr − ω􏼁
5.2.1. Stackelberg-Collusion Model. In the Stackelberg-Col-
lusion game model, which is denoted by SCL, a Stackelberg
game is played between the collector and the manufacturer, Proof. The second-order derivative of Πc w.r.t. Pc can be
while the recyclers collude with each other to set the prices of obtained as z2 Πc /P2c � − 2(βr − ω)/θ2 < 0. Therefore, the
recycled materials. In the first stage of the SCL model, the objective function Πc in CPSCL is strictly concave and there
manufacturer announces the selling price for the finished exists a unique global maximizer of CPSCL . By setting
product. Based on this, in the second stage of the game, the zΠc /zPc � 0, we obtain the equilibrium solution PSCL in
c
collector determines its selling price for the recyclable waste. equation (30). This completes the proof.
In the last stage, following the collector’s price, two recyclers Accordingly, by substituting equations (28) and (30) into
make a decision on their prices cooperatively. According to the manufacturer’s profit function, the manufacturer’s
Proposition 1, the recycler i’s equilibrium price, PSCL
ri , in the pricing problem, MPSCL , regarding the SCL model can be
SCL model is given by formulated as follows:
Pc + Cri K􏼐βr δi + ωδj 􏼑 MPSCL : max Πm Pm 􏼁 � 􏼐Pm − Cp 􏼑D − 􏽐 Pri Dmi
PSCL
ri � + , for i � 1, 2, j � 3 − i. Pm ∈R+ i
2θ 2θ􏼐β2r − ω2 􏼑
s.t. eqs.(28) and (30)
(28)
Πm Pm 􏼁 > 0.
By substituting equation (28) into the collector’s profit (31)
function, the collector’s pricing problem, CPSCL , regarding □
the SCL model can be formulated as follows:
CPSCL : max Πc Pc 􏼁 � 􏽐 Pc − Cc 􏼁Dri
Pc ∈R+ i Proposition 8. In the Stackelberg-Collusion pricing game
(29) model, there exists a unique Stackelberg equilibrium under
s.t. eq.(28)
the manufacturer’s price, PSCL
m :
Πc Pc 􏼁 > 0.
􏼐β2r − ω2 􏼑􏽨cβm 2Cc + Cr1 + Cr2 􏼁 − 16θ􏼐α + βm Cp 􏼑􏽩 + αc2 θβm 􏼂16δ1 δ2 βr − ω􏼁 − 7βr + ω􏼃
PSCL
m � . (32)
θβm 􏽮c2 βm 􏼂16δ1 δ2 βr − ω􏼁 − 7βr + ω􏼃 − 32􏼐β2r − ω2 􏼑􏽯
z2 Πm ⎨ c2 βm 􏼂16δ1 δ2 βr − ω􏼁 − 7βr + ω􏼃
⎧ ⎬
⎫
Proof. The second-order derivative of Πm w.r.t. Pm can be � β m ⎩ 2
− 2⎭
zP2m 2
16􏼐βr − ω 􏼑
obtained as
z2 Π m ⎨ c2 βm 􏼂16δ1 δ2 βr − ω􏼁 − 7βr + ω􏼃
⎧ ⎬
⎫ ⎨ c2 β 􏼂4 βr − ω􏼁 − 7βr + ω􏼃
⎧ ⎬
⎫
� β m ⎩ 2
− 2⎭ . ≤ βm ⎩ m 2
− 2⎭
zP2m 2
16􏼐βr − ω 􏼑 2
16􏼐βr − ω 􏼑
(33)
3c2 βm
2
If the condition z Πm /zP2m < 0 is satisfied, the objective � − βm 􏼢 + 2􏼣.
16 βr − ω􏼁
function in MPSCL is strictly concave and there exists a
(34)
unique global maximizer of MPSCL . Because 0 ≤ δ1 , δ2 ≤ 1,
and δ1 + δ2 � 1, the maximum value of δ1 δ2 must be 0.25,
Therefore, it is obvious that z2 Πm /zP2m < 0. From the
where δ1 � δ2 � 0.5. The upper bound of z2 Πm /zP2m is
first-order condition, zΠm /zPm � 0, we can obtain the
obtained as follows:
manufacturer’s equilibrium solution PSCL

m in equation (32). CPSCT . By setting zΠc /zPc � 0, we obtain the equilibrium
This completes the proof. solution PSCT
c in equation (38). This completes the proof.
Hence, considering the backward induction, the equi- Ultimately, by integrating equations (36) and (38) into
librium prices of the collector and the recyclers in the SCL the manufacturer’s profit function, the manufacturer’s
model are determined as follows: pricing problem, MPSCT , in the SCT model can be for-
mulated as follows:
2Cc − Cr1 − Cr2 cθ α − βm PSCL
m 􏼁
PSCL
c � + , MPSCT : max Πm Pm 􏼁 � 􏼐Pm − Cp 􏼑D − 􏽐 Pri Dmi
4 4 βr − ω􏼁 Pm ∈R+ i
2 s.t. eqs.(36) and (38)

cθ α − βm PSCL 2 SCL
m 􏼁 βr δ1 + ωδ2 􏼁 + 􏼐βr − ω 􏼑 Pc + Cr1 􏼁
PSCL
r1 � 2
, Πm Pm 􏼁 > 0.
2θ􏼐βr − ω 􏼑2
(39)
cθ α − βm PSCL βr δ2 + ωδ1 􏼁 + 􏼐β2r 2
− ω􏼑 PSCL + Cr2 􏼁 □
m 􏼁 c
PSCL
r2 � . Proposition 10. In the Stackelberg-Cournot pricing game
2θ􏼐β2r − ω2 􏼑
model, there exists a unique Stackelberg equilibrium under
(35) the manufacturer’s price, PSCT
m . By solving the first-order
□ condition, PSCT is obtained.
m
5.2.2. Stackelberg-Cournot Model. In the Stackelberg- Proof. The second-order derivative of Πm w.r.t. Pm can be
Cournot game model, which is denoted by SCT, a Stack- obtained as
elberg game is played between the collector and the man- z2 Π m 4c2 δ1 δ2 βm βr c2 βm βr X3
ufacturer, with the Cournot behavior following the two 2
� βm ⎡⎢⎢⎣ 2 + ⎤⎥⎥⎦
2− 2 .
zPm 2βr + ω􏼁 2 2
4 βr − ω􏼁􏼐4βr − ω 􏼑
recyclers. In the first stage of the SCT model, the manu-
facturer announces the selling price for the finished product. (40)
Based on this, in the second stage game, the collector de-
termines its selling price for the recyclable waste. In the last
3
where X3 � 6ω − 15ω βr + 2
− 28ωβ2r 28β3r .
If the condition
stage, following the collector’s price, each recycler reaches a z2 Πm /zP2m < 0 is satisfied, the objective function in MPSCT is
price decision independently. According to Proposition 2, strictly concave and there exists a unique global maximizer
recycler i’s equilibrium price, PSCT of MPSCT . Like the proof of Proposition 8, the upper bound
ri , in the SCTmodel is given
by of z2 Πm /zP2m is obtained as follows:
K􏼐2βr δi + ωδj 􏼑 + βr 􏽨2βr Pc + Cri 􏼁 + ω􏼐Pc + Crj 􏼑􏽩 z2 Π m 4c2 δ1 δ2 βm βr c2 βm βr X3
PSCT
ri � , 2
� βm ⎡⎢⎢⎣ 2 + 2− 2
⎤⎥⎥⎦
θ􏼐4β2r − ω2 􏼑 zPm 2βr + ω􏼁 2 2
4 βr − ω􏼁􏼐4βr − ω 􏼑
for i � 1, 2 , j � 3 − i. c2 βm βr c2 βm βr X3
≤ βm ⎡⎢⎢⎣ 2+ 2 − 2⎤⎥⎥⎦
(36) 2βr + ω􏼁 4 βr − ω􏼁􏼐4β2r − ω2 􏼑
Then, by replacing equation (36) into the collector’s
profit function, the collector’s pricing problem, CPSCT , re- c2 βm βr 3βr − 2ω􏼁
� − βm ⎡⎣ 2 + 2⎤⎦.
garding the SCT model can be formulated as follows: 4 βr − ω􏼁 2βr − ω􏼁
CPSCT : max Πc Pc 􏼁 � 􏽐 Pc − Cc 􏼁Dri (41)
Pc ∈R+ i
s.t. eq.(36) (37) Here, it is true that 3βr > 2ω because we assume that
βr > ω. This implies that
Πc Pc 􏼁 > 0.
c2 βm βr 3βr − 2ω􏼁 z2 Π m
3βr > 2ω ⟹ 2 >0⟹ < 0. (42)
4 βr − ω􏼁 2βr − ω􏼁 zP2m
Proposition 9. Given the value of Pm , there exists a unique
Hence, from the first-order condition, zΠm /zPm � 0, we
equilibrium solution, PSCT
c , which maximizes the collector’s can obtain the manufacturer’s equilibrium solution PSCT
m .
profit:
This completes the proof. □
2C − Cr1 − Cr2 K
PSCT
c � c + . (38)
4 4 βr − ω􏼁 The explicit expression of PSCT
m is long and complicated.
Instead, we present a brief version of the solving procedure
in Appendix B.
Proof. The second-order derivative of Πc w.r.t. Pc can be
obtained as z2 Πc /zP2c � − 4βr (βr − ω)/θ2 (2βr − ω) < 0.
Therefore, the objective function Πc in CPSCT is strictly 5.2.3. Stackelberg-Stackelberg Model. In the Stackelberg-
concave and there exists a unique global maximizer of Stackelberg game model, which is denoted by SST, only one
Stackelberg game is played throughout the investigated Then, by substituting equation (43) into the collector’s
supply chain. This Stackelberg game consists of four stages. profit function, the collector’s pricing problem, CPSST re-
In the first stage, the manufacturer announces the selling garding the SST model can be formulated as follows:
price of the finished product. Based on this, in the second CPSST : max Πc Pc 􏼁 � 􏽐 Pc − Cc 􏼁Dri
stage of the game, the collector determines its selling price Pc ∈R+ i
for the recyclable waste. In the third stage, following the s.t. eq. (43) (44)
collector’s selling price, recycler 1 sets the selling price for
the recycled materials. Finally, in the last stage, recycler 2 Πc Pc 􏼁 > 0.
makes a decision on its selling price based on the infor-
mation on other players’ prices. By considering the Stack-
elberg behavior of the recyclers, their prices are already Proposition 11. Given the value of Pm , there exists a unique
known as equilibrium solution, PSST
c , which maximizes the collector’s
Pc + Cr1 βr ω Pc + Cr2 􏼁 + K 2βr δ1 + ωδ2 􏼁 profit:
PSST
r1 � + ,
2θ 2θ􏼐2β2r − ω2 􏼑
ωPSST P + Cr2 Kδ2

PSST
r2 �
r1
+ c + .
2βr 2θ 2θβr
(43)
1 K ω2 􏼂K δ2 − δ1 􏼁 + βr + ω􏼁 Cr1 − Cr2 􏼁􏼃
PSST
c � 􏼨2Cc − Cr1 − Cr2 + + 􏼩. (45)
4 βr − ω 8β3r − ω3 + βr ω 4βr − 3ω􏼁
Proof. The second-order derivative of Πc w.r.t. Pc can be Cr1 � Cr2 � 0.5, and Cc � 0.2. In Figure 3, we can observe
obtained as that Πm is strictly concave w.r.t. Pm , and the maximum is
obtained at Pm � 115.946.
z2 Π c βr − ω􏼁􏽨8β3r − ω3 + βr ω 4βr − 3ω􏼁􏽩
� − < 0. (46)
zP2c 2θ2 βr 􏼐2β2r − ω2 􏼑 Proposition 12. Assuming that Conjecture 1 is true, in the
Stackelberg-Stackelberg pricing game model, there exists a
Therefore, the objective function Πc in CPSCT is strictly unique Stackelberg equilibrium under the manufacturer’s price,
concave and there exists a unique global maximizer of PSST SST
m . By solving the first-order condition, Pm is obtained.
CPSCS . By setting zΠc /zPc � 0, we obtain the equilibrium
solution PSCT
c in equation (45). This completes the proof. Proof. If Conjecture 1 is true, there exists a unique global
Ultimately, by integrating equations (43) and (45) into the maximizer of MPSST . By setting zΠm /zPm � 0, we obtain the
manufacturer’s profit function, the manufacturer’s pricing equilibrium solution PSST
m . This completes the proof. □
problem, MPSST , in the SSTmodel can be formulated as follows:
MPSST : max Πm Pm 􏼁 � 􏼐Pm − Cp 􏼑D − 􏽐 Pri Dmi The explicit expression of PSST
m is long and complicated.
Pm ∈R+ i Instead, we present a brief version of the solving procedure
s.t. eqs.(43) and (45) in Appendix B.
Πm Pm 􏼁 > 0.
(47) 6. Numerical Examples
For the uniqueness of the manufacturer’s equilibrium This section numerically investigates the effects of param-
price, we introduce the following conjecture: □ eters on the optimal equilibrium quantities. The main
dataset used for the analysis is as follows: α � 500, βm � 4,
βr � 10, ω � 5, δ1 � 0.6, c � 8, θ � 0.5, Cp � 1,
Conjecture 1. The objective function, Π m , in MPSST is
Cr1 � Cr2 � 0.5, and Cc � 0.2. For this dataset, we obtain the
strictly concave w.r.t. the manufacturer’s price, Pm .
equilibrium price and profit for each player in the developed
pricing game models in the next sections.
Because the second-order derivative of the manufac-
turer’s profit function has a highly complicated form in
terms of input parameters, it is difficult to prove the con- 6.1. Effect of ω on Equilibrium Quantities. Parameter ω in the
cavity of the manufacturer’s profit function. Instead, we recyclers’ demand functions indicates the competition in-
present a simple numerical example to show that Conjecture tensity between the two recyclers. We are interested in an
1 is reasonable. We set the parameters as follows: α � 500, investigation of the effects of the competition intensity on
βm � 4, βr � 10, ω � 5, δ1 � 0.7, c � 8, θ � 0.5, Cp � 1, equilibrium prices and profits. To do this, we consider the
2200
Manufacturer’s profit
2000
1800
1600
1400
110 112 114 116 118 120

Pm
Figure 3: Concavity of the manufacturer’s profit in the SST model.
main dataset and vary ω from 0 to 8. The equilibrium and the obtained profits for different values of βr . As the
quantities of the decision variables and the obtained profits value of βr increases, we observe the following:
for different values of ω are plotted in Figure 4. As the value
(i) The manufacturer’s and the collector’s prices de-
of ω increases, we observe the following:
crease in each of the six pricing game models.
(i) The manufacturer’s and the collector’s prices in- (ii) In the NCL and SCL models, recycler 1’s and re-
crease in each of the six pricing game models. cycler 2’s prices decrease, while in the remaining
(ii) In the NCL and the SCL models, recycler 1’s price four models, their prices increase.
increases, while in the remaining four models, re- (iii) The profits of all members in the supply chain in-
cycler 1’s price decreases. crease in each of the six pricing game models.
(iii) In the NCL and the SCL models, recycler 2’s price Therefore, the total profit of the supply chain also
increases. In the remaining four models, recycler 2’s increases.
price initially increases to a certain level, i.e., it has a
From the facts observed above, we suggest the following
maximum, and then decreases.
managerial insight:
(iv) The profit of all members except recycler 2 decreases
in each of the six pricing game models. Insight 2. We can infer that the demand for the finished
product is an increasing function of βr . This is because
(v) Recycler 2’s profit initially increases to a certain
that, as the value of βr increases, the manufacturer’s
level, i.e., it has a maximum, and then decreases in
price decreases while the manufacturer’s profit in-
each of the six pricing game models. This is an
creases. In other words, increasing βr boosts the de-
interesting phenomenon by which a recycler with
mands of all the members in the supply chain. These
smaller market share will benefit from limited
boosted demands then cause the profits of all members
competition.
in the supply chain to increase. Consequently, the total
From the facts observed above, we suggest the following profit of the supply chain also increases. Note that the
managerial insight: manufacturer’s price sensitivity βr is the key parameter
for lowering the prices of supply chain members when
Insight 1. As the competition between the two recyclers
the recyclers collude with each other.
intensifies, the profit of all members except recycler 2
decreases. This leads to lower total profit of the supply
chain. In other words, competition has a negative effect
6.3. Effect of δ1 on Equilibrium Quantities. Parameter δi in
on the profits of not only the supply chain but also its
the recyclers’ demand functions indicates the recycler i’s
members. Note that the competition intensity ω is the
market share. In this section, we conduct a sensitivity
key parameter for raising the prices of supply chain
analysis of the market share on the equilibrium prices and
members when the recyclers collude with each other.
profits. Varying δ1 from 0.5 to 0.7, Figure 6 records the
trends of the equilibrium quantities of the decision variables
and the obtained profits for different values of δ1 . As the
6.2. Effect of βr on Equilibrium Quantities. Parameter βr in
value of δ1 increases (i.e., recycler 1’s market share grows),
the recyclers’ demand functions indicates the manufac-
we observe the following:
turer’s price sensitivity with regard to the recycled materials.
To investigate the effects of the manufacturer’s price sen- (i) The manufacturer’s and recycler 1’s prices increase
sitivity on equilibrium prices and profits, we consider the in each of the six pricing game models.
main dataset and vary βr from 5.5 to 10. Figure 5 shows the (ii) The collector’s and recycler 2’s prices decrease in
trends of the equilibrium quantities of the decision variables each of the six pricing game models.
30
Manufacturer’s price
120 9 28
Collector’s price
Recycler 1’s price

26
8
115 24
7 22
20
110
6 18
16
0 2 4 6 8 0 2 4 6 8 0 2 4 6 8
ω ω ω
NCL SCL NCL SCL NCL SCL
NCT SCT NCT SCT NCT SCT
NST SST NST SST NST SST
(a) (b) (c)

28
Manufacturer’s profit 4000
Collector’s profit
26 1500
24
3000
22
1000
20 2000
18
16 500
1000
0 2 4 6 8 0 2 4 6 8 0 2 4 6 8
ω ω ω
(d) (e) (f )
7000
800
Supply chain profit

Recycler 2’s profit
150 6000
600 5000
100 4000
400
3000
200 50
2000
0 2 4 6 8 0 2 4 6 8 0 2 4 6 8
ω ω ω
(g) (h) (i)
Figure 4: Effect of ω on equilibrium prices and profits.
124 10
30
122
Collector’s price
9
120 25
8
118
7 20
116
114 6
6 7 8 9 10 6 7 8 9 10 6 7 8 9 10
βr βr βr
(a) (b) (c)

Figure 5: Continued.
30 2500
1200
2000 1000
25
1500 800
600
20 1000
400
500 200
15
6 7 8 9 10 6 7 8 9 10 6 7 8 9 10
βr βr βr
(d) (e) (f )
500 150
Supply chain profit

Recycler 2’s profit 4000
400
300 100 3000
200 2000
50
100 1000
0 0
6 7 8 9 10 6 7 8 9 10 6 7 8 9 10
βr βr βr

(g) (h) (i)
Figure 5: Effect of βr on equilibrium prices and profits.
8.5
26
8.0
117
Collector’s price
24
7.5
116 22
7.0
115 6.5 20
6.0 18
114 5.5
0.50 0.55 0.60 0.65 0.70 0.50 0.55 0.60 0.65 0.70 0.50 0.55 0.60 0.65 0.70
δ1 δ1 δ1
(a) (b) (c)

26 2700 1400
24
2600
22 1200
2500
20 2400
18 1000
2300 900
16
2200 800
14
0.50 0.55 0.60 0.65 0.70 0.50 0.55 0.60 0.65 0.70 0.50 0.55 0.60 0.65 0.70
δ1 δ1 δ1
(d) (e) (f)

700 350
Supply chain profit

300
600 4500

500 250
200 4000
400
150
300
100
200 3500
50
0.50 0.55 0.60 0.65 0.70 0.50 0.55 0.60 0.65 0.70 0.50 0.55 0.60 0.65 0.70
δ1 δ1 δ1
(g) (h) (i)
Figure 6: Effect of δ1 on equilibrium prices and profits.
(iii) The profit decreases for all members except for profit of the supply chain to increase. The greater the
recycler 1 in each of the six pricing game models. recyclability degree of the waste is, the higher the profits
Only recycler 1’s profit increases. for all the members involved in the recycling process
become. In other words, recyclability has a positive
From the facts observed above, we suggest the following
impact on the total profit of the supply chain. Note that
managerial insight:
θ raises the price of the collector while it lowers the
Insight 3. An increase in δ1 means that the imbalance in price of both retailers in all game models.
the market share is intensifying in the recycling market.
As δ1 increases, only the recycler 1’s profit increases,
whereas the profits of the other members decrease. This 6.5. Effect of c on Equilibrium Quantities. Parameter c in the
causes the total profit of the supply chain to decrease. recyclers’ demand functions indicates the quantity of the
Summarizing the above, the imbalance in the market recycled materials required to produce one unit of the
share has a negative effect on the profit of the supply finished product. This section investigates the effects of the c
chain. on the equilibrium prices and profits. Varying c from 4 to 12,
Figure 8 records the trends of the equilibrium quantities of
the decision variables and the obtained profits for different
6.4. Effect of θ on Equilibrium Quantities. Parameter θ in the values of c. As the value of c increases, we observe the
collector’s demand indicates the recyclability of the waste following:
that can be recovered and turned into raw materials. This
(i) The price decreases for all members except for the
section investigates the effects of the recyclability degree on
manufacturer in each of the six pricing game models.
the equilibrium prices and profits. Varying θ from 0.1 to 0.9,
Only the manufacturer’s price increases.
Figure 7 records the trends of the equilibrium quantities of
the decision variables and the obtained profits for different (ii) The profit decreases for all members in each of the
values of θ. As the value of θ increases, we observe the six pricing game models.
following. From the facts observed above, we suggest the following
In the Stackelberg game structure of the leaders group, managerial insight:
the manufacturer’s price increases. However, in the NCTand
the NST models, the manufacturer’s price decreases. Finally, Insight 5. It is observed that a higher value of c leads to
in the NCL model, the manufacturer’s price is not affected by lowering the profits of all members. As c increases, the
the recyclability: quantity of the recycled materials needed to meet the
customer’s demand increases. Moreover, the collector
(i) The collector’s price increases in each of the six must collect more waste, leading to higher costs. As a
pricing game models. result, the profit of the supply chain gradually
(ii) Recycler 1’s and recycler 2’s prices both decrease in decreases.
each of the six pricing game models.
(iii) The profit increases for all members except for the
manufacturer. Only the manufacturer’s profit 6.6. Effect of βm on Equilibrium Quantities. Parameter βm in
decreases. the manufacturer’s demand functions indicates the con-
sumer’s price sensitivity with regard to the finished product.
From the facts observed above, we suggest the following We are interested in an investigation of the effects of βm on
managerial insight: equilibrium of prices and profits. To do this, we consider the
Insight 4. As θ increases, the profit increases for all main dataset and vary βm from 1 to 7. Figure 9 records the
members except for the manufacturer, causing the total trends of the equilibrium quantities of the decision variables
15 30

Collector’s price
120.0
10 25
119.0
5 20
118.0
0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8
θ θ θ

(a) (b) (c)

30 1900
900
1800
800
25 1700 700
1600 600
20 1500 500
400
1400
15 300
0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8
θ θ θ

(d) (e) (f )
350
120 3000
Supply chain profit

300
100
250 2600
80
200
60
150 2200
100 40
50 20 1800
0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8
θ θ θ

(g) (h) (i)
Figure 7: Effect of θ on equilibrium prices and profits.
14
40
120
12 35
Collector’s price
115 10 30
25
110 8
20
6 15
105
4
4 6 8 10 12 4 6 8 10 12 4 6 8 10 12
γ γ γ
(a) (b) (c)

40 5000
35 2000
4000
30
1500
25 3000
20 2000 1000
15 500
1000
10
4 6 8 10 12 4 6 8 10 12 4 6 8 10 12
γ γ γ
(d) (e) (f )
800 300 8000
Supply chain profit

Recycler 2’s profit 250

600 6000
200
400 150 4000
100
200
2000
50
4 6 8 10 12 4 6 8 10 12 4 6 8 10 12
γ γ γ
(g) (h) (i)
Figure 8: Effect of c on equilibrium prices and profits.
400 70
350 20 60
Collector’s price
300 50
15
250 40
200 10 30
150
20
100 5
10
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7
βm βm βm
(a) (b) (c)
60 10000
50 20000 8000
40 6000
30 10000 4000
20 5000 2000
10 0 0
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7
βm βm βm
(d) (e) (f )
4000 1200 40000
Supply chain profit

1000
3000 30000
800
2000 600 20000
400
1000 10000
200
0 0 0
1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7
βm βm βm

(g) (h) (i)
Figure 9: Effect of βm on equilibrium prices and profits.
and the obtained profits for different values of βm . As the most advantageous (disadvantageous) for the
value of βm increases, we observe the following: manufacturer.
(i) Prices decrease for all members in each of the six (vi) In the case of the Stackelberg game structure of the
pricing game models leaders group, the collector’s profit is higher than
that of the Nash game structure: ΠNCL c < ΠSCL
c ,
(ii) Profits decrease for all members in each of the six NCT SCT NST SST
Πc < Πc , and Πc < Πc . In terms of prof-
pricing game models
itability, the SCL (NCL) pricing game model is the
From the facts observed above, we suggest the following most advantageous (disadvantageous) for the
managerial insight: collector.
Insight 6. It is obvious that as βm increases, the demand (vii) In the case of the Stackelberg game structure of the
for the finished product decreases resulting in lowering leaders group, the recycler 1’s profit is higher than
the demands for the recyclable waste and the recycled that of the Nash game structure: ΠNCL SCL
r1 < Πr1 ,
NCT SCT NST SST
materials, respectively. As a result, the profit for each Πr1 < Πr1 , and Πr1 < Πr1 . In terms of profit-
member decreases. Note that, in all game models, βm ability, the SCL (NCT) pricing game model is the
lowers the prices of all supply chain members as well as most advantageous (disadvantageous) for recycler 1.
their profits. (viii) In the case of the Stackelberg game structure of the
leaders group, the recycler 1’s profit is higher than
that of the Nash game structure: ΠNCL SCL
r2 < Πr2 ,
6.7. Comparison among Six Pricing Game Models. From NCT SCT NST SST
Πr2 < Πr2 , and Πr2 < Πr2 . In terms of profit-
Figures 4–9, we can find the following: ability, the SCL (NCT) pricing game model is the
(i) In the case of the Nash game structure of the most advantageous (disadvantageous) for recycler 2.
leaders group, the manufacturer’s price is higher (ix) In terms of the total profit of the supply chain, the
than that of the Stackelberg game structure: Stackelberg game structure of the leaders group
PNCL SCL
m > Pm , Pm
NCT
> PSCT NST
m , and Pm > Pm .
SST outperforms the Nash game structure. In addition,
(ii) In the case of the Stackelberg game structure of the the recyclers’ Collusion (Cournot) behavior per-
leaders group, the collector’s price is higher than forms the best (the worst):
that of the Nash game structure: PNCL < PSCL ΠNCT < ΠNST NCL SCT SST SCL
sc < Πsc < Πsc < Πsc < Πsc , where
c c , sc
NCT SCT
Pc < Pc , and Pc < Pc .NST SST Πsc is the total profit of the supply chain.
(iii) In the case of the Stackelberg game structure of the
leaders group, recycler 1’s price is higher than that 7. Conclusion
of the Nash game structure: PNCL SCL
r1 < Pr1 , In this work, we discussed a topic related to environmental
PNCT
r1 < P SCT
r1 , and P NST
r1 < P SST
r1 .
sustainability through an investigation of the collecting and
(iv) In the case of the Stackelberg game structure of the recycling processes of recyclable waste in a three-echelon
leaders group, recycler 2’s price is higher than that CLSC consisting of one manufacturer, one collector, and two
of the Nash game structure: PNCL SCL
r2 < Pr2 , recyclers. This study utilized game theory to model the
NCT SCT NST SST
Pr2 < Pr2 , and Pr2 < Pr2 . problem of determining the equilibrium prices of partici-
(v) In the case of the Stackelberg game structure of the pants in the investigated supply chain considered. We as-
leaders group, the manufacturer’s profit is higher sumed that the manufacturer and the collector belong to the
than that of the Nash game structure: ΠNCL
m < Πm ,
SCL
leaders group and that the two recyclers belong to the
NCT SCT NST SST
Πm < Πm , and Πm < Πm . In terms of prof- followers group. In the leaders group, we dealt with two
itability, the SCL (NCT) pricing game model is the pricing structure types: the Stackelberg and Nash types. In
the followers group, price competition was assumed to exist B. Solving Procedure for the Equilibrium Prices
between the two recyclers, and we dealt with three types of
competition behavior for the recyclers: Collusion, Cournot, For all. g ∈ {SCT, SST}
and Stackelberg. With the two pricing structure types in the g g
Step 1: set Pc � Pc and Pri � Pri , i � 1, 2
leaders group and the three types of competition behavior in
the followers group, six different pricing game models were Step 2: solve the equation zΠm /zPm � 0 w.r.t. Pm , and
g
developed. For each of the pricing game models, the set the root to the manufacturer’s price, Pm
g g g g g
uniqueness of equilibrium and optimal pricing was ana- Step 3: calculate Pc � Pc (Pm ) and Pri � Pri (Pm , Pc ),
lytically proved. Finally, various numerical experiments i � 1, 2.
were conducted to investigate the effects of the experimental
parameters on the equilibrium prices and profits of the Data Availability
supply chain members. To the best of our knowledge, the
current paper is the first to consider the concept of selling No data were used to support this study.
price competition between recyclers in a three-echelon
CLSC.
In terms of the total profit of this supply chain, our main Conflicts of Interest
findings are as follows: The authors declare that they have no conflicts of interest.
(i) As the price competition intensifies between the
recyclers, the total profit of the supply chain Acknowledgments
decreases
(ii) The higher the manufacturer’s price sensitivity for This work was supported by Basic Science Research through
the recycled materials is, the higher the total profit the National Research Foundation of Korea (NRF) funded
of the supply chain becomes by the Ministry of Education (NRF-
(iii) As the imbalance in the market share intensifies in 2018R1D1A3B07040887).
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Closed Loop SC 1

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Hindawi

Mathematical Problems in Engineering

Correspondence should be addressed to Doo Ho Lee; [email protected]

Received 5 February 2020; Accepted 7 March 2020; Published 18 April 2020

Guest Editor: Shib Sankar Sana

1. Introduction The supply chain is an important branch of operational

of the demand from one recycler to the other recycler.

Πm � 􏼐Pm − Cp 􏼑D − 􏽘 Pri Dmi ,

The manufacturer is a leader and it

Collusion Cournot Stackelberg

Recycler 1 is Recycler 2 is Recycler 1 is a leader and it initially

Pc + Cri K􏼐βr δi + ωδj 􏼑

Pr2 ∈ arg max Πr2 Pr2 􏼁

Proof. The second-order derivative of the objective function By integrating PST ST

Pc + Cr1 βr ω Pc + Cr2 􏼁 + K 2βr δ1 + ωδ2 􏼁

Proposition 6 states the result of the NST pricing game

Upon the assumption that δ1 ≥ δ2 , it follows that equilibrium price, PNST

manufacturer’s equilibrium solution PSCL

2 s.t. eqs.(36) and (38)

ωPSST P + Cr2 Kδ2

110 112 114 116 118 120

Figure 3: Concavity of the manufacturer’s proﬁt in the SST model.

Recycler 1’s price

(a) (b) (c)

Supply chain profit

(g) (h) (i)

Figure 4: Eﬀect of ω on equilibrium prices and proﬁts.

Recycler 1’s price

(a) (b) (c)

Supply chain profit

NCL SCL NCL SCL NCL SCL

(g) (h) (i)

Figure 5: Eﬀect of βr on equilibrium prices and proﬁts.

(a) (b) (c)

(d) (e) (f)

Supply chain profit

Recycler 2’s profit

(g) (h) (i)

Figure 6: Eﬀect of δ1 on equilibrium prices and proﬁts.

Recycler 1’s price

NCL SCL NCL SCL NCL SCL

(a) (b) (c)

NCL SCL NCL SCL NCL SCL

Supply chain profit

NCL SCL NCL SCL NCL SCL

(g) (h) (i)

Figure 7: Eﬀect of θ on equilibrium prices and proﬁts.

(a) (b) (c)

Supply chain profit

Recycler 2’s profit 250

(g) (h) (i)

Figure 8: Eﬀect of c on equilibrium prices and proﬁts.

(a) (b) (c)

4000 1200 40000

Supply chain profit

NCL SCL NCL SCL NCL SCL

(g) (h) (i)

Figure 9: Eﬀect of βm on equilibrium prices and proﬁts.

Responsibility practice,” International Journal of Production

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