Optimal reverse channel for end‐of‐life vehicle closed‐loop supply chains

Abstract This study examines a manufacturer selling directly to customers has three modes for acquiring end‐of‐life vehicles with a key component supplier: supplier‐collection, manufacturer‐collection, and third‐party‐collection modes. We find that the supplier, who is farther away from customers, is the optimal agent to be responsible for recovery activity. Following, we design a simple transfer price contract for the supplier‐collection mode such that the recovery rate achieves the centralized level. Subsequently, a fixed payment is proposed to compensate the supplier, thereby realizing Pareto improvement. Finally, we consider the supplier as the Stackelberg leader and find opposite results regarding optimal reverse channel structure.