Collection Cost Screening Mechanism in a Closedloop Supply Chain

Recently, the product remanufacturing has been a hot topic in the field of operational management, and more manufacturers are beginning to recover the value in their end-of-life (EOL) products by remanufacturing. This paper focuses on the closed-loop supply chain where the retailer takes charge of not only retail, but also collection. There are two possible types of the retailer's collection cost as an assumption, i.e. high cost or low cost, and the retailer knows his type, whereas the manufacturer only has a prior probability over the two possible cost types. This paper deploys the contracts with which the manufacturer can screen the type of the retailer to improve her profit under incomplete information. As a result, the pooling contract can perfectly coordinate the decentralized system under incomplete information, but the manufacturer obtains the lower profit; nevertheless, with the separating contracts the manufacturer obtains the larger profits though the system profit is lower.