Differential Game of Closed-loop Supply Chain with Manufacturer Sharing the Cost Recovery of Innovative Products

Purpose/Significance In the closed-loop supply chain of innovative products, this paper discusses the influence of manufacturers sharing recycling costs on the diffusion of innovative products. It is to identify the optimal paths for wholesale and retail prices, as well as the recycling efforts of recyclers, after the entry of innovative products into the market. Furthermore, the manufacturers’ optimal cost-sharing ratio is to be determined. Design/Methodology The trajectory of demand changes for innovative products upon entering the market is characterized by using the Bass model. Differential game theory and optimal control theory are used for resolution, and the impact of various market scenarios and recycling cost-sharing on the supply chain are analyzed in the study. Conclusions/Findings The results show that higher revenue can be obtained by taking advantage of advertising efforts to improve consumption preference coefficient and imitation coefficient in the market with low consumption preference coefficient and imitation coefficient, and manufacturers need to bear higher recovery costs to obtain the maximum profit in this case. While in the market with high preference coefficient and imitation coefficient, small marginal benefit of improving consumption preference coefficient and imitation coefficient through advertising effort can be obtained, but the optimal cost-sharing ratio of manufacturers will be relatively low followed by relatively higher profits of manufacturers, retailers and supply chains. Besides, the decision-making in the closed-loop supply chain is more complicated than that in the open-loop supply chain. Also, the results show that the cost of recovery effort shared by manufacturers can improve the profit of all participants in the supply chain, and there is an optimal cost-sharing ratio among manufacturers under various market conditions.