A game theory framework for cooperative management of refillable and disposable bottle lifecycles

Firms engaged in industrial ecology hope to reduce environmental impacts and costs, improve resource efficiency, and create symbiotic relationships that reduce transaction costs and enhance information flow. However, current LCA tools do not explain firms' incentives to implement the principles of industrial ecology, or how an individual or firm can affect the products and processes at other firms. Game theory, on the other hand, allows investigation of the willingness of producers and consumers to seek strategies that promote the common interest of the system while not harming their own interests. This paper applies game theory to the lifecycle of bottle packaging, and presents a framework for analysis of the choice between refillable and disposable bottles. Although refillable bottles may be more cost effective in the long run, bottlers only have incentive to use refillable bottles when they are sure that consumer return rates will be reasonably high. It has been found that consumers who keep or dispose of refillable bottles, or respond to deposit/refund return incentives by reducing their demand, may drive costs up and encourage adoption of disposables. A simple model is provided which finds the optimal bottler strategy as a function of the bottler's expectations for consumer cooperation.