<p>The level of returned products significantly affects the economic and environmental aspects of a closed-loop supply chain (CLSC), in which used products are restored to their useful life. Nevertheless, implementing a CLSC encounters a major hurdle because of the uncertainty surrounding demand and the returned quantity. To address this, we analyse a CLSC model that incorporates a dual-collection channel (DCC) for collecting used products under a two-period planning horizon, considering uncertainty in demand and the quantity of returns. In this model, both a third-party collector (3PC) and a manufacturer engage in competition for used product collection from customers during period 2 by offering acquisition prices as an incentive. In period 1, the new product is manufactured solely using raw materials. However, in period 2, an improved product is produced by integrating returned products with raw materials. Consequently, some customers are induced to return their used products and purchase the upgraded version. The issue is modelled as a two-period newsvendor framework, which is then solved through backward induction. The potential market demand and the stocking factor positively influence the quality improvement level (QIL), while acquisition prices decrease with an increase in potential market demand. Furthermore, the manufacturer’s expected profit increases with return quantity up to a threshold determined by the proportion of returns used for remanufacturing. The findings offer analytical insights for designing competitive return systems, improving circularity, and aligning CLSC strategies with international sustainability objectives.</p>