When should competitors collaborate or compete to adopt an environment-improving technology?

What is it about?

The Consumer Electronics Association estimates that the initial compliance requirements for the European Union’s Restriction of Hazardous Substances (RoHS) directive, which restricts the use of only six substances, cost the global electronics industry $32 billion. We examine when opportunities exist for competitors to work together to adopt a replacement for a substance of concern (e.g., BPA in water bottles).

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Why is it important?

When competitors do not collaborate, market leaders can use the presence of a substance of concern to capture more demand and charge higher prices for products containing a replacement substance. Consequently, we find that it is often market laggards that have the most incentive to collaborate. While collaboration reduces consumers' exposure to a substance of concern, it can actually hurt consumer surplus when the replacement substance is very costly.