Abstract: To achieve higher supply chain efficiency and improve completive edge, the manufacturer can cooperate with other member in the closed-loop supply chain. Even though conventional wisdoms such as Nie (2012) and Ma et al. (2016) studied industry profits of different cooperative models in closed-loop supply chain, they ignored the fact that many countries set premium and penalty mechanism to order manufactures to engage in remanufacturing fields. Then scholars did not consider that situation that manufacturers maybe be under scale diseconomies as well. Therefore, the effects of premium and penalty mechanism on manufacturer's cooperative strategies in the closed-loop supply chain consisting of a manufacturer, a retailer and a recycler under manufacturer's scale diseconomies are investigated. First, whether the manufacture has an incentive to cooperative with another member is explored. Second, we need to explore which kind of cooperation bring more profit increment for partners. Third, how different cooperation affect the industry profit is analyzed.
To settle these problems, four cooperative models based on game theory:no cooperation mode (Model N), cooperation only with the recycler (Model MC), and cooperation only with the retailer (Model MR), and cooperation with both the retailer and recycler (Model MCR) are developed. Model MCR and N just are made as benchmarks. Especially, Model MCR is the upper bound, and Model N is the bottom in these models. Through our analysis, it is found that the manufacturer always has an incentive to cooperate with recycler or retailer. However, whether it is more possible to cooperate with the retailer or recycler depends on both production diseconomies and degree of premium and penalty mechanism. If both production diseconomy and degree of premium and penalty are small, the manufacturer prefers to cooperate with the retailer. Otherwise, the manufacturer prefers to cooperate with the recycler. The relations of industry profits in different models are still decided by both production diseconomies and degree of premium and penalty mechanism. In addition, the collecting quantity of end-of-life product always improves thanks to the alliance between the manufacturer and the retailer or recycler.

Key words: production diseconomies, premium and penalty mechanism, closed-loop supply chain, cooperative strategy