Vishal V. Agrawal

Remanufacturing, Third-Party Competition, and Consumers' Perceived Value of New Products

In this paper, we investigate whether and how the presence of remanufactured products and the identity of the remanufacturer influence the perceived value of new products through a series of behavioral experiments. Our results demonstrate that the presence of products remanufactured and sold by the original equipment manufacturer OEM can reduce the perceived value of new products by up to 8%. However, the presence of third-party-remanufactured products can increase the perceived value of new products by up to 7%. These results suggest that deterring third-party competition via preemptive remanufacturing may reduce profits, whereas the presence of third-party competition may actually be beneficial for an OEM. n nThis paper was accepted by Serguei Netessine, operations management.

The Role of Modular Upgradability as a Green Design Strategy

Modular upgradability has been suggested as a strategy for improving environmental performance: as technology improves, it allows for independent replacement of improving subsystems, instead of replacing the entire product. This may extend the useful life of stable subsystems, reducing production and disposal impact. However, this argument ignores the effect of modular upgradability on a firms development and introduction decisions and the environmental impact during the use phase. In this paper, we investigate when modular upgradability leads to lower environmental impact and higher profits. We do so by endogenizing a firms development and introduction decisions and considering the products environmental impact during its entire life cycle. Our results show that although modular upgradability may accelerate the replacement of some subsystems, it delays the replacement of others. We find that modular upgradability can increase the environmental impact for some product categories due to accelerated obsolescence arising from more frequent introduction and replacement. However, we also find that accelerated obsolescence, under some conditions, can actually make modular upgradability greener.

The Potential of Servicizing as a Green Business Model

It has been argued that servicizing business models, under which a firm sells the use of a product rather than the product itself, are environmentally beneficial. The main arguments are: First, under servicizing the firm charges customers based on the product usage. Second, the quantity of products required to meet customer needs may be smaller because the firm may be able to pool customer needs. Third, the firm may have an incentive to offer products with higher efficiency. Motivated by these arguments, we investigate the economic and environmental potential of servicizing business models. We endogenize the firms choice between a pure sales, a pure servicizing, and a hybrid model with both sales and servicizing options, the pricing decisions and, the resulting customer usage. We consider two extremes of pooling efficacy, viz., no versus strong pooling. We find that under no pooling servicizing leads to higher environmental impact due to production but lower environmental impact due to use. In contrast, under strong pooling, when a hybrid business model is more profitable, it is also environmentally superior. However, a pure servicizing model is environmentally inferior for high production costs as it leads to a larger production quantity even under strong pooling. We also examine the product efficiency choice and find that the firm offers higher efficiency products only under servicizing models with strong pooling.

Trade-In Rebates for Price Discrimination and Product Recovery

We investigate when and how an original equipment manufacturer (OEM) should offer a trade-in rebate to recover used products, in order to achieve better price discrimination and weaken competition from third-party remanufacturers (3PRs). This paper is motivated by a major IT equipment OEM, which negotiates with customers to offer them personalized trade-in rebates to induce them to return their old products and purchase new units. The company also faces increasing competition from 3PRs. We model such a trade-in program with negotiated rebates through a generalized Nash bargaining framework. Our main research question is whether the OEM should compete with a 3PR using only a trade-in program, or by offering remanufactured products (preemptive remanufacturing), or by offering both a trade-in program and remanufactured products. In the absence of 3PRs, the OEM always prefers to offer the trade-in program compared to not offering a trade-in program. As a trade-in program also helps to restrict the supply of used products to 3PRs, one would expect that offering a trade-in program would be more attractive in the presence of a 3PR. We show, however, that the OEM may find it detrimental to offer a trade-in program when faced with competition from a 3PR. We also show that despite the fact that cores are readily available via the trade-ins, the trade-in program makes it less attractive for the OEM to remanufacture. We find that the OEM prefers to only preemptively remanufacture and not offer a trade-in program when the production cost is high. Finally, we show that offering a trade-in program may also lead to lower total environmental impact but only in the presence of remanufactured products.

The Effect of Sourcing Policies on a Supplier's Sustainable Practices

Consumers today increasingly care about the process characteristics of the supply chain that created their product, such as the environmental impact of the processes. To meet this growing demand for sustainably produced products, firm must be able to source sustainably produced parts from their suppliers. In this paper, we analyze when and how buyers (manufacturers or retailers) can use sourcing policies to influence their suppliers to adopt sustainable processes that meet certain sustainability criteria. We study two sustainable sourcing policies commonly observed in practice, which influence supplier process decisions by committing to offer sustainable products. Under a Sustainable Preferred sourcing policy, a buyer commits to offering a sustainable product if she can source sustainably produced parts from the supplier, but otherwise will offer a conventional product. In contrast, under a Sustainable Required sourcing policy, the buyer will only offer a sustainable product, and therefore will only source from the supplier if he has adopted a sustainable process. We find that both the Preferred and Required policies can deter the supplier from switching to a sustainable process when the premium for the sustainable product is high. Moreover, the buyer can actually benefit from using the Preferred policy to deter the supplier. The Required policy can induce the supplier to switch but only when the premium for the sustainable product is low. However, the buyer may still benefit from using the Required policy to induce switching. We also consider the effect of supplier competition and show that both the Preferred and Required policies can deter or induce the supplier from switching to a sustainable process. However, the buyer never finds it beneficial to deter a supplier in the presence of supplier competition, and will only use a sustainable sourcing policy to induce switching.

The Role of Decision Rights in Co-Development Initiatives

We study initiatives for novel co-development projects, where it may be difficult a priori to specify contracts contingent on the project outcome. In such settings, firms often rely on simple contracts that specify the decision-making process by allocating decision rights. Our goal is to study the effectiveness and design of such governance structures in incentivizing co-operative efforts and maximizing the total value of the project. In our model, a seller and a buyer consider a menu of non-contingent contracts, each of which specify a quantity and an associated transfer payment. The contracts also specify decision rights to set the contract terms upfront (ex-ante) and to choose the quantity after the market potential is realized (ex-post). Our results bear several important implications for the optimal allocation of decision rights and the value of contracting: First, when a decision right is delegated to the seller, he exerts higher effort towards the project. However, the seller may exert lower effort when he has both the decision rights as opposed to when he only has the ex-post decision right. Second, when the buyer has low bargaining power, the ex-post decision right should be delegated to the seller, i.e., the party with lower exposure to the effort-contingent outcome. Otherwise, the ex-post decision right should be delegated to the buyer but the ex-ante right should be held by the seller. Finally, we show that simple contracts with decision rights outperform a spot contract when the ex-post bargaining power of one of the parties is substantially higher.

Modular Upgradability in Consumer Electronics: Economic and Environmental Implications

Modularly upgradable product designs have been advocated to offer environmental and economic advantages; however, they are not commonly used in the consumer electronics industry. In this article, we investigate the economic and environmental benefits and challenges of modular upgradability for consumer electronics. From an economic point of view, we posit that the limited adoption of modular upgradability in consumer electronics is due to various demand-, technology-, and competition-related issues. From an environmental point of view, we posit that modularly upgradable product designs may not necessarily lead to superior environmental outcomes. To reach meaningful conclusions regarding the environmental benefits of modular upgradability, one needs to understand how product architecture affects demand, production, and consumption patterns, which arise from endogenous consumer and manufacturer choices. It is also important to take into account that modular upgradability may have potentially differentiated effects in the production, consumption, and post-use phases of the lifecycle.

Servicizing in Supply Chains and Environmental Implications

Recently, a new type of innovative business models have been developed based on the premise that economic value is not necessarily associated with the production and distribution of products, but rather with the use and functionality that the products can offer. It has been argued that such models, often referred to as servicizing business models, may have a positive impact on the environment because they can enable firms to achieve both economic and environmental sustainability. However, they may also present unique implementation challenges because they require the business-as-usual relationship between the different partners in a supply chain to change from product-based to use- or function-based. In this chapter, we outline a taxonomy of different servicizing business models observed in practice, based on different operational characteristics. Based on these characteristics, we also provide an overview of the reasons why servicizing may improve environmental performance. More importantly, we also provide a discussion of why servicizing may backfire and lead to worse environmental outcomes due to the firm and/or consumer decisions. Finally, we identify implementation challenges that may prevent the adoption of servicizing business models in practice.

Extended Producer Responsibility for Durable Products

Problem definition: We study how Extended Producer Responsibility (EPR) legislation implementations for durable products should differ from those for non-durable products. Academic and Practical Relevance: Certain unique characteristics of markets for durable products, which make designing EPR implementations more challenging, have not been explored to date in academia and practice. We fill this void by investigating the effect of EPR on durable goods markets. Methodology: We develop a game-theoretic model to analyze durable goods producers secondary market strategy under EPR and analytically explore its environmental implications. Results: The implications of EPR are not straightforward for durable products. On one hand, despite being focused on recycling, EPR may lead to an unintended benefit in the form of higher reuse levels by reducing producers secondary market interference. On the other hand, EPR can also induce or increase secondary market interference by producers. This diminishes environmental goals such as reducing new production and increasing reuse levels, two key environmental goals with higher priority than increasing recycling. Policy Implications: We offer insights for how the environmental effectiveness of EPR for durable products can be improved by appropriately choosing its implementation parameters. We show that implementation approaches that may be considered successful for non-durable products (e.g., packaging or end-of-life batteries), may not be suitable for durable products such as electronics. For example, more stringent collection targets and infrastructure requirements can backfire in EPR implementations for durable products.