Laissez-Faire vs. Government Intervention: Implications of Regulation Preventing Nonauthorized Remanufacturing.

This article compares two policy regimes governing third-party remanufacturing: a laissez-faire policy, where independent remanufacturers (IRs) may choose whether to obtain original equipment manufacturer (OEM) authorization, and a mandatory authorization policy, which requires IRs to obtain OEM authorization and pay a per-unit fee. Using a game-theoretic supply chain model involving a supplier, an OEM, and an IR, the study finds that contrary to conventional wisdom, mandatory authorization can benefit all firms—including IRs—when remanufacturing costs are low, by encouraging higher new product manufacturing and remanufacturing volumes. Conversely, for products with moderately high remanufacturing costs, a laissez-faire policy yields higher profits for all firms and greater consumer surplus, though often with increased environmental impact. The analysis also highlights trade-offs between economic and environmental outcomes under each policy and underscores the importance of supply chain structure and strategic firm interactions in shaping policy effectiveness.