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Circular Business Models: Product Design and Consumer Participation

Stefan Buehler, Rachel Chen () and Daniel Halbheer

No 2302, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

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.

Keywords: Circular business model; waste footprint; resource footprint; recycling; reverse supply chain; pricing (search for similar items in EconPapers)
JEL-codes: D21 L21 M21 M31 Q53 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023-01
New Economics Papers: this item is included in nep-com, nep-ind and nep-upt
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http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-2302.pdf (application/pdf)

Related works:
Working Paper: Circular Business Models: Product Design and Consumer Participation (2023) Downloads
Working Paper: Circular Business Models: Product Design and Consumer Participation (2022) Downloads
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