Circular Business Models: Product Design and Consumer Participation *
Type
discussion paper
Date Issued
2023-10
Author(s)
Abstract
This paper develops an analytical framework to study the mechanics of circular business models in markets where consumers care about recyclability and make both a purchase decision and a disposal decision when the product reaches end-of-life. Transitioning to a circular business model allows the firm to tap into a new source of revenue by recycling end-of-life products and charge a green premium for products with higher recyclability. We show that the firm determines recyclability by balancing the marginal changes in the expected end-of-life utility of the product perceived by consumers and the unit cost net of the expected value of the recovered resources. We also 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, profit, and the waste footprint of the firm. In addition, we identify the conditions under which the transition from a linear to a circular business model is profitable and socially desirable, and show how policy makers can accelerate the circular transition. Finally, we show that competition has no impact on recyclability but tends to undermine the viability of circularity, and present options for policy makers to improve the performance of circular business models.
Keywords
Circular transition
end-of-life product disposal
deconsumption
waste footprint
recycling
pricing
File(s)![Thumbnail Image]()
open.access
Name
Circularity.pdf
Size
371.23 KB
Format
Adobe PDF
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