Towards sustainable consumption and production: Competitive pricing of modular products for green consumers

Concern for unsustainable development has peaked, and promoting and devising sustainable production and consumption is vital. Therefore, via an analytical model, we examine the impact of modularity and consumer sensitivity to sustainability on the pricing decisions of two competing firms. Consider a...

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Bibliographic Details
Published in:Journal of cleaner production Vol. 142; pp. 4230 - 4242
Main Authors: Ülkü, M. Ali, Hsuan, Juliana
Format: Journal Article
Language:English
Published: Elsevier Ltd 20.01.2017
Subjects:
advertising
Game theory
issues and policy
market share
Mass customization
Modularity
prices
production technology
profits and margins
supply chain
Supply chain management
Sustainability
SCP
SD
Supply chain management
Mass customization
CE
CSR
Sustainability
DfX
ESG
SSCM
Modularity
Game theory
ISSN:0959-6526, 1879-1786
Online Access:Get full text
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Summary:Concern for unsustainable development has peaked, and promoting and devising sustainable production and consumption is vital. Therefore, via an analytical model, we examine the impact of modularity and consumer sensitivity to sustainability on the pricing decisions of two competing firms. Consider an environmentally conscious (green) consumer who will buy one of two available, horizontally differentiated products: a modular product (M) manufactured by Firm M or a standard product (S) manufactured by Firm S. Firm M can take advantage of its modular production technology and product return policy. For such a consumer-driven demand setting, we develop a model and solve to optimality a single-stage, non-cooperative game where both firms simultaneously set their competitive prices. In addition to analytical expressions for the optimal prices and the profits for both firms, we provide structural results and numerical examples to render practical insights: The refund rate has a strong impact on profits; sensitivity of product greenness can be increased by conscientious advertising, and the reusability of modular parts encourages lower pricing and higher market share. We assert that modularity is a strong concept and practice in developing sustainable products and thereby in production, which, in turn, may enhance sustainable consumption. This study's findings have direct implications for reverse supply chain management, and firms should take these findings into account early in the product design phase. [Display omitted] •Sustainable production should lead to sustainable consumption.•Modularity is essential for developing sustainable products and production.•Closed-form expressions for optimal prices under competition are given.•Greening the product pays off; pricing and refund rate have strong impacts on profits.•The reusability of modular parts may encourage lower pricing and higher market share.
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ISSN:0959-6526
1879-1786
DOI:10.1016/j.jclepro.2016.11.050