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An Analysis of Monopolistic and Competitive Take-Back Schemes for WEEE Recycling

Published: 9 Dec 2011

Authors: Toyasaki, Fuminori; Boyaci, Tamer; Verter, Vedat

Abstract:

We study two prevailing types of take-back schemes for electrical and electronic equipment waste recycling: monopolistic and competitive. We address key market and operating factors that make one scheme preferable to the other from the viewpoints of recyclers, manufacturers, and consumers. To this end, we model competitive decision making in both take-back schemes as two-stage sequential games between competing manufacturers and recyclers. Deriving and computing equilibria, we find that the competitive take-back scheme often accomplishes a win-win situation, that is, lower product prices, and higher recycler and manufacturer profits. Exceptionally, recyclers prefer the monopolistic scheme when the substitutability level between the manufacturers' original products is high or economies of scale in recycling are very strong. We show that consolidation of the recycling industry could benefit all stakeholders when the economies of scale in recycling are strong, provided that manufacturer's products are not highly substitutable. Higher collection rates also render recycler consolidation desirable for all stakeholders. We also identify a potential free rider problem in the monopolistic scheme when recyclers differ in operational efficiency, and propose mechanisms to eliminate the discrepancy. We show that our results and insights are robust to the degree of competition within the recycling industry.

Production and Operations Management, November/December 2011

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