Price setting for green design

Abstract

Although much has been said about promoting industrial ecology, little has been done to specify how to incorporate the broad goals of promoting environmental friendliness into a model of profit maximizing behavior for the firm. We outline such a model for products that can be repaired, remanufactured, or recycled. One way to promote optimal product use is to set a price that declines each time the product is reused. Another is a deposit fee that declines with each use. This simple model encourages the firm to find if products as reusable, remanufacturable, or recyclable and focuses on interactions between the firm and the consumer.