The impact of a repair subsidy on repair prices, demand and repair company profitability

Repair is a critical contributor towards a more sustainable circular economy by prolonging the lives of consumer products. However, compared with purchasing new products, consumers perceive repair as expensive and inconvenient. Consequently, repair demand is low. To overcome this problem and stimulate demand, public authorities have introduced financial incentives in the form of different funding schemes for electric and electronic products. Clearly the design of these schemes will affect how repair companies set repair prices and how this affects consumer demand for repair. However, at a micro-level, this relationship between repair funding and repair prices as well as demand has not been studied before. In this paper we analyze and compare two designs of a funding scheme for electric and electronic products as implemented in Austria. Using a stylized model, we show that while such schemes lead to increasing prices, they can indeed enhance demand and improve repair company profits. Moreover, we find that preferences of consumers and repair companies with respect to the design of the funding scheme may diverge. Thus, public authorities need to prioritize demand or supply side benefits of the funding scheme.