Competition and Firmss Willingness to Implement Industrial Symbiosis

Abstract

Industrial Symbiosis or By-Product Synergy is defined as a resource-sharing strategy that engages traditionally separate industries in a collective approach that involves a physical exchange of materials, water, energy, and by-products. Inspired by a real-world example of a paper-sugar symbiotic complex, we study the impact of competition on a firm’s willingness to implement an industrial symbiotic system. Sugar and paper firms are symbiotically connected, in the sense that the waste from the manufacture of one product is used as a raw material for the second product, and vice-versa. We characterize the firm’s operational optimal/equilibrium decisions for its two products – both in the presence and absence of a symbiotic system – under monopoly as well as under competition. Our models capture the supply-side (e.g., a fixed production cost and changes in the variable production costs) as well as the demand-side (“green” consumers who value the nature-friendly production process) impact of implementing industrial symbiosis. Our results indicate that firms are more willing to implement industrial symbiosis when (a) the proportion of the green consumers is high; or (b) consumers’ appreciation for the green variants is high; or (c) variable production costs after implementation are lower. For a firm, competition from firms that only produce regular products encourages implementation of industrial symbiosis, whereas competition from firms that produce both regular and green products discourages it.