How strategic consumers shape manufacturer refurbishment strategies under collection target

This paper examines a critical challenge in the circular economy: How manufacturers can formulate profitable refurbishment strategies under mandatory collection targets when facing strategic consumers. We develop a two-period game-theoretic model in which the manufacturer’s collection effort is constrained by an exogenously mandated collection target. Our analysis examines the viability of refurbishment as a function of this target, the quality of the refurbished products, and the consumers’ willingness to wait. We reveal the following key insights: (1) Stringent collection targets can paradoxically suppress refurbishment activities by forcing manufacturers to collect beyond economically viable limits; (2) refurbishment becomes profitable only when the quality of refurbished products is sufficiently high to offset cannibalization effects on new product sales; (3) the impact of strategic consumers’ behavior on social welfare varies significantly across different compliance scenarios, with increased consumer patience sometimes reducing overall welfare; and (4) in competitive settings, a manufacturer’s all-collection strategy can serve as an effective barrier to entry against independent refurbishers. Our findings offer valuable insights for policymakers designing product take-back regulations and for manufacturers developing circular economy strategies in markets with strategic consumers.