In the remanufacturing system considered in this study, there are an Original Equipment Manufacturer (OEM) and a Third Party Remanufacturer (TPR). The OEM produces and sells an innovative product, and his innovation knowledge cannot be directly observed. Thanks to the spillover of OEM’s general knowledge about product design and production in remanufacturing processes, the TPR not only remanufactures used products but also produces new products under its own brand. It sells remanufactured and new products in the same market as the OEM. In response to the potential market share cannibalization from TPR’s products, the OEM collaborates with the TPR by granting the latter a remanufacturing authorization. The spillover of OEM’s innovation knowledge takes place under this cooperation. Knowledge spillover in the remanufacturing system like the above is common in practice, especially in the automobile industry. In examining the effect of general and innovation knowledge spillover on two firms’ production and cooperation strategies, we consider two scenarios in this study, including pure competition and remanufacturing authorization cooperation scenarios. Our results highlight the conditions under which the TPR engages in new product production and stops remanufacturing in pure competition and cooperation scenarios. An interesting finding is that although innovation knowledge spillover motivates the TPR to engage in new product production and weakens the competitiveness of OEM’s products, both firms can be better off when compared to the pure competition scenario. Moreover, both consumer surplus and the environment can be improved by remanufacturing authorization cooperation.