Retail-collection network design under deposit-refund

Acknowledgements: This research has been supported in part by a grant from the Social Sciences and Humanities Research Council of Canada (410-02-0705). The comments and suggestions of an anonymous referee were very helpful in improving the paper. This submission was handled by Gilbert Laporte. Abstract This paper studies the interplay between industrial firms and government concerning the collection of used products from households. The focus is on the use of a deposit-refund requirement by the government when the collection rate voluntarily achieved by the firms is deemed insufficient. We present a continuous modeling framework for designing a drop-off facility network and determining the sales price that maximize the firm's profit under a given deposit-refund. The customers' preferences with regards to purchasing and returning the product are incorporated via a discrete choice model with stochastic utilities. Through parametric analyses, we determine the net value that can be recovered from a returned product as a key driver for the firm to voluntarily engage in collection. We show that a minimum deposit-refund requirement would not achieve high collection rates for products with low return value and point out two complementary policy tools that can be used by the government.