Abstract: A reverse supply chain composed of a manufacturer and a recycler is discussed in this paper. Such a supply chain can operate in two modes: 1) the manufacturer owns storage facilities and has the right to release them; and 2) the recycler owns storage facilities and has the right to release them. The question is that under which mode the profit of the whole supply chain can be maximized. To answer this question, a twolevel gametheoretic model is developed under both modes with government environmental regulation and subsidy taken into account. With the model, numerical simulation is carried out. Results show that when there are environmental regulation and constant subsidy from a government, and facilities should be rented for waste product storage, Mode 2) is better than Mode 1). However, when there is no government environmental regulation, Mode 1) is better than Mode 2). 

Key words: reverse supply chain, storage facility, Stackelberg game