Extended Producer Responsibility in the Auto Industry and Durable Goods Leasing: some economic complications for sector policy

Publication Type:

Conference Paper


Gerpisa colloquium, Berlin (2010)


environment, extended producer responsiblity, intertemporal pricing, public policy, regulation


There is a growing consensus within auto-industry specific literature and associated discussions internationally that ‘extended producer responsibility’ models of corporate responses to environmental and resource concerns must play an important future role. The viewpoint in question is carefully and ably described in Ceschin and Vezzoli (2010), who also outline main variations on this theme, and public policy issues vis-à-vis support. In this paper we contribute by considering some economic policy complications.
One key theme in this emerging literature is that traditional patterns of product ownership might be displaced by de facto consumer durable rental or leasing models, organized by environmentally aware and responsible corporations selling ‘not cars, but mobility’. It is thus envisaged for some writers not only that producers will undertake extended life-time responsibility for the products (cars) which they design and produce (or for which they organize design and production, depending of course upon the vertical structures ultimately emerging), a responsibility extending from birth through to the organization of end-of-life disposal, but that product ownership patterns could also radically change.
However, for some decades now the mainstream economics literature – often drawing for conceptual support upon the so-called ‘Coase conjecture’ (see Coase 1972; see, for example, Gul et al (1986); also Gul (1987)) – have observed that leasing models of ownership for major consumer durables carry within them anti-trust implications. This literature implies that the availability to prospective buyers of a pool of second hand cars in market economies with private consumer ownership inhibits the ability of producers to achieve the sort of per-period mark-ups on marginal costs that would be possible if the entire fleet remained under the direct and continuing control of the car manufacturers. From the viewpoint of public policy, therefore, in addition to environmental issues there must also be due consideration of the regulated price-quantity-profit status of extended producer responsibility models if based upon new forms of product ownership. This is further complicated by the fact that there is no reason to suppose that profit maximisation within an unregulated price-quantity model must be environmentally optimum.
In this paper we set out these issues while considering too the ‘stability’ problem – the question as to whether extended producer responsibility models based on rental or leasing models in which firms retain ownership of products (cars) can thrive if implemented only by some producers, with other producers sticking with traditional selling models.
Finally we will suggest that in considering economic regulation and stability we observe within the extended producer responsibility debate – at least in the more radical versions which envisage a move towards altered patterns of durable goods ownership – not only the potential outline of a new kind of (necessarily) ‘managed capitalism’, but also the potential for conflicts between different national policy makers reflecting differences between actually and currently existing models or varieties of capitalism. (In this respect contributing to a second major debate: see, for example, Coffey and Thornley 2009).
Our aim in this paper is to appraise these issues in order to introduce another element to the existing policy debate, to further inform its still ongoing development; as such, this paper provides a conceptual input to a major applied research programme. We frame these issues within the wider discourse about sustainability for the global auto industry, with projections of ‘two billion cars’ in twenty years time (Sperling and Gordon 2009), and vis-à-vis debates about new technologies informing car design and manufacture
Coase, R. (1972) ‘Durability and Monopoly’, Journal of Law and Economics, vol. 15, pp143-149
Coffey, D. and Thornley, C. (2009) Globalization and Varieties of Capitalism: New Labour, Economic Policy and the Abject State, Basingstoke and New York: Palgrave MacMillan
Ceschin, F. and Vezzoli, C. (2010) ‘The role of public policy in stimulating radical environmental impact reduction in the automotive sector: the need to focus on Product-Service System innovation’, International Journal of Automotive Technology and Management, vol 2/3 (forthcoming)
Gul, F. (1987), ‘Foundations of Dynamic Oligopoly’, Rand Journal of Economics, vol. 18, pp248-254
Gul, F., Sonnenschein, H. and Wilson, R. (1986) ‘Foundations of Dynamic Monopoly and the Coase Conjecture’, Journal of Economic Theory, vol. 39, pp155-190
Sperling, D. and Gordon, D. (2009) Two Billion Cars: Driving Towards Sustainability, Oxford and New York: Oxford University Press

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