Strategic take-back programs when consumers have heterogeneous environmental preferences

Valeria Forlin and Eva-Maria Scholz

Resource and Energy Economics, 2020, vol. 60, issue C

Abstract: We look at the strategic introduction of take-back programs (TBPs) which offer consumers a discount on their next purchase (reward) when they drop off previous purchases. In a Hotelling duopoly, consumers are heterogeneous not only in terms of their location on the Hotelling line but also in terms of their recycling preferences. Firms introduce TBPs to obtain a market share advantage (reward effect) and/or to recover the intrinsic value of the recycled units (recycling effect); their choice of the optimal reward balances these two effects: for instance, a firm might be willing to introduce a TBP, even if this means losing money on each recycled unit, in order to prevent the competitor from gaining a too large market share advantage. Comparing the level of TBP uptake at the market equilibrium to the one that maximizes social welfare, we show that a lower or higher TBP uptake can be socially desirable, depending, among other, on the weight that is given to the environmental benefits of TBPs. Several extended producer responsibility policies are discussed in terms of their potential to encourage TBP uptake and their overall impact on social welfare.

Keywords: Take-back programs; Trade-in; Waste management; Circular economy; Extended producer responsibility; Recycling (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:60:y:2020:i:c:s0928765519301058

DOI: 10.1016/j.reseneeco.2020.101150

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