A game theoretic framework for post-consumer recycled and new packaging industries

Abstract

This paper presents a game-theoretic framework of competition for two packaging companies. The first one is a traditional packaging firm that employs new raw materials in its packaging and invests in innovative packaging solutions. In contrast, the other takes advantage of a combination of new and post-consumer-recycled (PCR) material based on a cost saving strategy. The model incorporates the price and quality of the product as well as its packaging and is implemented on packaging firms with the same source of manufacturer/importer. Two different scenarios are considered with the potential to push companies towards sustainable solutions; namely the existence of eco-conscious consumers and government tax on the new raw material packaging. The problem is established as a two-stage game, and the optimal level of investment in packaging innovation, the optimal ratio of PCR material and the optimal retail prices are derived, all in equilibrium. A real-world example and also parametric and sensitivity analysis are provided and valuable insights are derived. The results indicate that current proposed virgin tax plans do not provide a strong incentive towards sustainable packaging, whereas eco-conscious customers give this impetus. It was also observed that the imposed virgin tax does not impede innovation investment in virgin packaging companies. © 2023 Elsevier Ltd