Analyzing coordination strategy of circular supply chain in re‐commerce industry: A game theoretic approach

Abstract The circular economy seeks to reduce waste by reusing, refurbishing, and recycling used products. It increases the resource value of used goods. In this study, we proposed a circular business gap exploiter model in which a re‐commerce company exploits residual value in product systems utilization. A game‐theoretic approach is used to investigate the coordination problem of a two‐echelon circular supply chain with e‐commerce and re‐commerce companies. In addition, we proposed a coordinated structure under the revenue sharing contract and the two‐part tariff contract through Nash negotiation to address the coordination problems. We compared the centralized and decentralized model findings and observed that the decentralized model shows potential for improvement. We showed model's applicability through numerical examples and sensitivity analysis to indicate how parameters such as wholesale price and retail price affect channel decisions and member profits. The results show that a two‐part tariff contract may efficiently coordinate the circular supply chain. The study shows that under a circular business model, two tactics may be applied. These are extending product value and extending resource value.