managemnet company strategy managemanet The Unintended Consequences of Right-to-Repair Laws

The Unintended Consequences of Right-to-Repair Laws

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Right to repair legislation is designed to break the monopoly of manufacturers in the repair market, thus allowing consumers to hold on to their old products, so that they do not throw away used products and buy new ones. new with ease. This will reduce the impact on the environment by reducing e-waste and new production. New research, forthcoming in the journal Management Science, challenges this conventional wisdom and finds that right-to-repair legislation can in some instances lead manufacturers to flood the market with cheap goods, thereby harming the environment, and in other instances will lead manufacturers to dramatically increase the price of goods, thus damaging. consumers. Lawmakers should examine specific product categories, including their production costs and environmental impact, and guard against sweeping, one-size-fits-all legislation.

The growing “right-to-repair” legislative movement seeks to make it easier and cheaper for consumers to repair their products by requiring manufacturers to share information to repair, provide diagnostic tools, and provide service parts. Various right-to-repair laws have been considered and passed around the world. In Europe, manufacturers must legally supply spare parts for up to 10 years. In the US, President Biden signed a sweeping executive order in July 2021 directing the FTC to draft new regulations on the right to repair, and various US states have passed some version of law entitled to remedy.

Repair advocates argue that such legislation would break the manufacturers’ monopoly on the repair market and benefit consumers. They further argue that quick repairs allow consumers to hold on to their old products, so they don’t throw away used products and buy new ones. This will reduce the impact on the environment by reducing e-waste and new production. Amua RESEARCH REVEALSto come in the journal Management Sciencechallenged this conventional wisdom and found that right-to-repair legislation may not benefit consumers or the environment.

The key is that manufacturers can strategically adjust new product prices to mitigate their perceived loss of profit from the right-to-repair law. Will manufacturers follow a margin strategy and raise new product prices to take advantage of easier repairs? Will manufacturers follow a volume strategy and cut new product prices to entice consumers to replace instead of fixing a glitchy product? Such price responses may have different implications for consumers and the environment.

We develop an economic model to analyze the reactive pricing strategies of manufacturers. Our model examines “durable goods” that are used repeatedly over time, such as cars, tractors, refrigerators, and cell phones. We consider parts of durable goods in the model, such as the replacement of new products and used products and between manufacturer repair and independent repair. In addition to studying how manufacturers change prices in response to right-to-repair legislation, our model tracks consumer surplus, a measure of how well consumers are doing, and examines the overall environmental impact of a product’s life cycle, including the impact at the production stage (e.g., water pollution), the impact at the time of use (e.g., vehicle emissions), and the impact in the disposal phase (for example, garbage).

It turns out that how manufacturers respond depends on how much it costs to make the product in question. In the market for products that are relatively cheap to manufacture – for example, smartphones and microwaves – our model predicts that a right-to-repair fee is likely to see manufacturers lower new prices to product and flood the market. This reduces the appeal of repair because consumers prefer to buy a new product at a low price rather than repair a used product. Therefore, slashing prices helps manufacturers avoid old products that cannibalize sales of new ones, ie, relieve the “demand cannibalization effect.” While lower prices benefit consumers, they also encourage more consumers to buy new products which translates into higher new production volumes and ultimately more e-waste. As a result, the environmental impact increases.

Conversely, when production costs are high, new products inevitably come with a high price tag. To overcome this and stimulate demand, manufacturers tend to offer free repair services to whet consumer appetite. This is a “value-enhancing effect,” ie, the repair service makes the products last longer and therefore, increases the consumer value of the product. Since the repair is offered free of charge, right-to-repair legislation – with the resulting lower independent repair costs – is unlikely to make much of a difference.

In instances where production costs are halved, our model predicts that the outcome will be a combination of the above effects. If the right-to-repair law is introduced, independent repair costs will begin to decrease, and manufacturers will likely lower the prices of their new products to entice customers from the option of repair (such as what happens in low-cost production. scenario). However, a sustained price drop will eventually leave the profit margin very thin. When independent repair is widely available, products have a longer life, which makes them more valuable. Manufacturers have an incentive to take advantage of that increase in value; in fact, they tend to change tacks and raise new product prices while offering free repair services (as would happen in a high production cost scenario).

Higher prices hurt consumers, but they also don’t benefit the environment. Although people may buy fewer new products, the quick fix may lead more consumers to use old, inefficient energy products, resulting in more high environmental impact. The worst situation can occur for products that have a high impact on the environment when they are used – such as cars, trucks, refrigerators, or other large appliances. Manufacturers can raise prices, and with a thriving repair market, more people can buy and use old electric guzzlers. All told, a right to repair bill in this scenario could create a “lose-lose-nothing” situation that would compromise factory profits, reduce consumer surplus, and exacerbate environmental impact even though the repair is made easier and cheaper.

Our results speak to a warning about the unintended consequences of right-to-repair legislation. We emphasize the inextricable link between the repair and product markets and encourage policymakers to take a more holistic approach to evaluating the effects of the right-to-repair law. Ignoring the strategic response from the product market (which in fact is often overlooked in the current debate on the right to repair) will paint an incomplete picture and even lead to the wrong conclusions. Instead, lawmakers should examine specific product categories, including their production costs and environmental impact, and guard against sweeping, one-size-fits-all legislation.

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