In this paper, we consider a supply chain that consists of an original equipment manufacturer (OEM) producing new products and a re-manufacturer recovering the used items. The OEM often faces a strategic dilemma when determining the degree of disassembly ability of its product design, as high disassembly ability decreases the OEM’s production costs as well as the re-manufacturer’s recovery costs. However, high disassembly ability may be harmful to the OEM in a market in which the re-manufacturer is encouraged to intensify price competition with the OEM because design for high disassembly ability leads to larger cost savings in re-manufacturing. We first formulate a two-period model to investigate the OEM’s product-design strategy and the re-manufacturer’s pricing strategy in an extensive-form game, in which the equilibrium decisions of the resulting scenarios are derived. Next, we show the thresholds that determine whether re-manufacturing is constrained by collection, the thresholds for the re-manufacturer’s choice of a profitable pricing strategy, and the thresholds for determining the OEM’s product-design strategy. Finally, we expand the model for a multiple-period problem to show that the main insights obtained from the two-period model can be applied.