The bright and dark sides of servitization under extended producer responsibility

Servitization has gained popularity with its concept of selling the functionality or use of a product rather than the product itself. However, the implications of EPR under servitization scenarios are not straightforward. On the one hand, servitization allows the manufacturer to retain ownership of the product, which mitigates the need for costly buyback procedures when the manufacturer is required to repurchase the end-of-use product under EPR. On the other hand, servitization expands the demand of consumers by allowing those who cannot afford the product to still use it by paying per use, thereby increasing the costs for manufacturers when it comes to recycling the product. To investigate the impact of EPR on servitization, we incorporate three distinct characteristics into the model: (i) pay-per-use pricing, (ii) the retention of product ownership, and (iii) repurchasing the end product due to EPR. The manufacturer strategically chooses among the pure sales model, servitization model, or a hybrid model that includes both options. Our findings indicate that without EPR, the manufacturer consistently prefers a hybrid model, as it provides better segmentation of different consumers. However, with EPR, the manufacturer will choose the pure sales model when the recycling rate is sufficiently high. Moreover, we find stringent EPR regulations with higher recycling rate may have negative environmental consequences. Based on these results, we emphasize the need for policymakers to carefully consider and set recycling rate.