Walking a tightrope: Impact of adopting voluntary right-to-repair policy on firm profit and consumer welfare

Abstract

Motivated by the current discourse on Right-to-Repair (RTR), we examine the conditions under which a firm decides to voluntarily adopt a pro-RTR policy in the absence of legislation. Understanding such conditions can guide firms and regulators alike. We propose utility theory-based models to capture a firm’s profit function when it adopts either a pro-RTR (PRR) or an anti-RTR (ARR) policy. The key distinction between ARR and PRR policy is the availability of self-repair option in PRR. Additionally, we consider the presence of unauthorized third-party repairers (TPRs), a commonly observed phenomenon worldwide. We find that a firm adopting PRR policy would benefit by improving the cost-effectiveness of its repair operations. Effective repair operations allow a firm to set a superior pricing policy while adopting PRR over ARR. For instance, it allows the firm to set lower product prices without infusing anti-consumer practices to dissuade them from going to unauthorized TPRs. We analyze the conditions under which PRR policy outperforms ARR policy both in terms of firm profit and consumer surplus (“win-win”). We find that repairability of a product has a trade-off between firm profit and consumer surplus and interestingly, optimally setting the part sales price may hamper in achieving “win-win” status. Furthermore, we show that the PRR policy is more suitable for sustainability-conscious markets where consumers prefer repair over a new purchase. In such markets, a firm with a PRR policy can set lower product prices while optimally setting the part sales margin for the self-repair option.