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Circular Business Models: Product Design and Consumer Participation

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  • Buehler, Stefan
  • Chen, Rachel
  • Halbheer, Daniel

Abstract

This paper develops an analytical framework to study how firms should design a product by choosing its recyclability and price when consumers adopt a life-cycle approach and decide whether to recycle an end-of-life product. We show that, under a linear business model, the firm offers a non-recyclable product even if consumers care about recyclability. Under a circular business model, the firm generates revenue from both sales and recycling, and determines recyclability by balancing the marginal changes in the consumers’ expected end-of-life utility and the unit production cost net of the expected value of the recovered resources. We identify conditions under which the firm offers a fully recyclable product and all consumers return the product for recycling. In addition, we show that stronger consumer concerns about recyclability and a higher market value of the recovered resources increase recyclability, but have an ambiguous impact on price, demand, profit, and the waste footprint of the firm. Further, we characterize conditions under which transitioning from a linear to a circular business model is profitable and socially desirable. Finally, we examine how the firm can boost circularity by leveraging deposit-refund systems, product buyback, or retaining product ownership.

Suggested Citation

  • Buehler, Stefan & Chen, Rachel & Halbheer, Daniel, 2023. "Circular Business Models: Product Design and Consumer Participation," Economics Working Paper Series 2302, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2023:02
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    References listed on IDEAS

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    More about this item

    Keywords

    Circular business model; waste footprint; resource footprint; recycling; reverse supply chain; pricing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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