Implications of coproduction technology on waste management: Who can benefit from the coproduct made of leftover materials?

In recent years, coproduction technology has been developed and adopted by many third-party coproduct manufacturers (CMs). Coproducts made of leftover materials from traditional manufacturing are strongly attractive to green consumers who are willing to pay a price premium for environmental protection. However, original equipment manufacturers (OEMs) might hesitate to adopt coproduction technology because the coproduct cannibalizes the sales of their traditional products. In this paper, we develop a game-theoretical model to investigate the economic and environmental implications of coproduction that can be leveraged by one OEM or one CM. We find that from the OEM’s perspective, the dominant strategy can be OEM coproduction, CM coproduction, or No coproduction, which is contingent on the demand from green consumers and the supply of raw materials. We also find that the size of green consumers and the unit cost of raw materials have non-monotone impacts on the CM’s profit. Interestingly, an enlarging size of green consumers might hurt the CM, while an increasing cost of raw materials might benefit the CM. Although coproduction recovers the value of leftover materials, the adoption of coproduction technology increases the total material consumption and the total material waste when the unit cost of raw materials is sufficiently high, making the environment worse off.