Channel leadership in closed-loop supply chains: trade-offs between profit maximization and return rate optimization in trade-in programs

The growing focus on sustainability has led companies to create trade-in programs, where customers return old products in exchange for incentives. However, it's not yet clear how channel leadership affect profits, and return rates in such types of closed-loop supply chains (CLSC). This study analyses channel power dynamics in a CLSC that use trade-in programs for collection of used products. A game-theoretic model is developed to compare centralized and decentralized (manufacturer-led, retailer-led) structures. Stackelberg games are employed for decentralized scenarios to derive optimal policy. Numerical experiments and sensitivity analyses validate theoretical findings. The findings show that while manufacturers’ individual profit is highest under decentralized policy, retailer-led centralized policy maximize the total profit of the entire supply chain. The centralized policy leverages retailer’s proximity to consumers, achieving higher profitability compared to decentralized systems. This underscores the trade-off between individual benefits and overall system-wide profit. The study assumes uniform product quality and does not address stochastic market disruptions. Future work could integrate quality-based pricing and multi-period uncertainties. Managers should balance channel leadership choices with remanufacturing cost efficiencies to optimize trade-in outcomes. This research pioneers the analysis of acquisition price effects across CLSC power structures, offering novel insights into CLSC dynamics. By contrasting centralized and decentralized models, it provides actionable strategies for firms to align sustainability goals with profitability. The findings advance CLSC literature by highlighting the critical role of channel leadership in trade-in program success. This research advances SDG 12 (Responsible Consumption and Production) by optimizing circular economy practices.