Business Model Choice under Right-to-Repair: Economic and Environmental Consequences
Working paper, earlier version on SSRN.
Business insights published on INSEAD Knowledge.
Runner-up in Production and Operations Management Society, College of Sustainable Operations Student Paper Competition, 2023.
Selected into the Early-Career Sustainable Operations Workshop, 2022.
Right to Repair (RTR) regulations require producers to supply necessary information and parts for consumers to independently undertake repairs. While these regulations aim to prolong product lifetimes through repairs, increase secondhand use, and reduce waste; the ease of access to proprietary information and spare parts can have unintended consequences. In particular, it may facilitate intellectual property rights (IPR) infringement by third parties. The increased risk of IPR infringement can, in turn, encourage producers to reconsider their business model choices between ownership and non-ownership models. We analyze the implications of RTR on business model choice, and the consequences for producers, consumers, and the environment. We use an analytical model to identify conditions under which RTR can motivate producers to retain ownership of products to protect their intellectual property and preempt competition with secondary markets and third parties. We find that in general, RTR regulations can curtail producer profits and incentives to innovate. However, for products with a high production cost, producers can benefit from RTR if its effect on increasing IPR infringement risks is marginal. RTR regulations can indeed lead to lower environmental impact for products with a high production cost and relatively low use-phase environmental impact. For other types of products, especially those with lower production costs, the business model implications of RTR can hurt both the environment and consumers. We find that retaining ownership can help producers mitigate the profit loss due to RTR. Our results also indicate conflicting implications on producers, consumers, and the environment. From a policy point of view, these implications of RTR require a careful evaluation considering producers' IPR concerns and business model choice.
A key principle of the circular economy is to fundamentally reconsider the nature of the transaction between producer and consumer. To facilitate circularity and enhance sustainability, producers retain ownership of a product throughout its lifetime, and consumers lease, rent, or share the product. This paper examines the feasibility of leasing instead of buying a product from both the consumer's and manufacturer's perspectives. We focus on repeated leasing with refurbishment in-between for the specific case of washing machines. Through an online experiment, we assess the preferences of consumers among the alternatives of purchasing a new machine and leasing a new or a used machine. The results reveal that the market is segmented and consumers have distinct preferences driven by psychological antecedents such as disgust, pride of ownership, and convenience of leasing. While there is some demand for leasing new and used machines, there are also barriers to the transition from selling to leasing: a significant number of consumers prefer to buy instead of lease at any price that would sustain a manufacturer's profitability. Moreover, there appears to be an imbalance in the consumer demand for leasing new and leasing used—a mismatch that poses an obstacle to the economic feasibility of a circular economy.
Humanitarian organizations (HO) respond to many emergencies with limited financial resources. For an effective and timely response, they need to prepare for potential emergencies, and allocate resources efficiently between programs. However, current funding practices often impede this. HOs receive a significant portion of funds in the aftermath of a crisis, preventing preparedness efforts. Moreover, these funds are often earmarked to a specific response, preventing organizations from preparing for and responding to other (usually smaller, under-the-radar) crises. This paper introduces a framework to quantify the price (i.e. value loss to beneficiaries) of such donor-imposed constraints in humanitarian operations. To that aim, we use a two-stage stochastic model where in the first stage, a humanitarian organization makes preparedness investments for multiple potential emergencies with unknown demand, subject to a budget and constraints on the use of the budget. In the second stage, the demands are realized and the HO utilizes the preparedness investments to respond. We quantify and compare the prices due to earmarking and preparedness constraints, and discuss how they depend on the demand and cost parameters. Our results have important implications for both humanitarian organizations and donors for understanding the consequences of funding inflexibility in various contexts.