Circular Business Models: Product Design and Consumer Participation

56 Pages Posted: 30 Dec 2022 Last revised: 31 Oct 2023

See all articles by Stefan Buehler

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Rachel R. Chen

University of California, Davis - Graduate School of Management

Daniel Halbheer

HEC Paris - Marketing

Date Written: October 31, 2023

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

Suggested Citation

Buehler, Stefan and Chen, Rachel R. and Halbheer, Daniel, Circular Business Models: Product Design and Consumer Participation (October 31, 2023). HEC Paris Research Paper No. MKG-2022-1465 , Available at SSRN: https://ssrn.com/abstract=4314781 or http://dx.doi.org/10.2139/ssrn.4314781

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Rachel R. Chen

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-7619 (Phone)
530-752-2924 (Fax)

Daniel Halbheer (Contact Author)

HEC Paris - Marketing ( email )

Paris
France

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