Article ID: | iaor20073175 |
Country: | United Kingdom |
Volume: | 34 |
Issue: | 2 |
Start Page Number: | 324 |
End Page Number: | 345 |
Publication Date: | Feb 2007 |
Journal: | Computers and Operations Research |
Authors: | Verter Vedat, Boyaci Tamer, Wojanowski Rico |
Keywords: | networks |
This paper studies the interplay between industrial firms and government concerning the collection of used products from households. The focus is on the use of a deposit–refund requirement by the government when the collection rate voluntarily achieved by the firms is deemed insufficient. We present a continuous modeling framework for designing a drop-off facility network and determining the sales price that maximizes the firm's profit under a given deposit–refund. The customers' preferences with regards to purchasing and returning the product are incorporated via a discrete choice model with stochastic utilities. Through parametric analyses, we determine the net value that can be recovered from a returned product as a key driver for the firm to voluntarily engage in collection. We show that a minimum deposit–refund requirement would not achieve high collection rates for products with low return value and point out two complementary policy tools that can be used by the government.