Towards sustainable consumption and production: Competitive pricing of modular products for green consumers M. Ali Ülkü a, * , Juliana Hsuan b a Rowe School of Business, Dalhousie University, 6100 University Avenue, Halifax, NS B3H4R2, Canada b Copenhagen Business School, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark article info Article history: Received 24 May 2016 Received in revised form 8 October 2016 Accepted 8 November 2016 Available online 11 November 2016 Keywords: Sustainability Supply chain management Modularity Game theory Mass customization abstract Concern for unsustainable development has peaked, and promoting and devising sustainable production and consumption is vital. Therefore, via an analytical model, we examine the impact of modularity and consumer sensitivity to sustainability on the pricing decisions of two competing firms. Consider an environmentally conscious (green) consumer who will buy one of two available, horizontally differen- tiated products: a modular product (M) manufactured by Firm M or a standard product (S) manufactured by Firm S. Firm M can take advantage of its modular production technology and product return policy. For such a consumer-driven demand setting, we develop a model and solve to optimality a single-stage, non-cooperative game where both firms simultaneously set their competitive prices. In addition to analytical expressions for the optimal prices and the profits for both firms, we provide structural results and numerical examples to render practical insights: The refund rate has a strong impact on profits; sensitivity of product greenness can be increased by conscientious advertising, and the reusability of modular parts encourages lower pricing and higher market share. We assert that modularity is a strong concept and practice in developing sustainable products and thereby in production, which, in turn, may enhance sustainable consumption. This study's findings have direct implications for reverse supply chain management, and firms should take these findings into account early in the product design phase. © 2016 Elsevier Ltd. All rights reserved. 1. Introduction In the face of diminishing resources and environmental chal- lenges, concern for Sustainable Development (SD) is on the rise. The Brundtland Report (1987 , p.54) defines SD as “… development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” As an overarching objective of and essential requirement for sustainable develop- ment, the concept of Sustainable Consumption and Production (SCP) has emerged. At the 1994 Oslo Symposium, the United Nations Commission on Sustainable Development defined SCP as “the use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardize the needs of further generations” (UNCSD, 1994). A vital ingredient of SCP therefore lies in producing and consuming sustainable products. We conjecture that modularity, whether in design, in the product, or in use by the consumer, may help enhance SCP initiatives. Although there has been increasing attention paid to SCP by both academic researchers and practi- tioners, to the best of our knowledge, no study explicitly in- corporates modularity in production costs and in the generation of consumer demand into a competitive operations model. Fig. 1 is a pictorial of our model in the SCP setting. In this paper, by taking the perspective of a green consumer, we develop a decision model that derives the demand for two competing products: a modular product, denoted by the letter M, and a standard product, denoted by S. These products have sub- stitutable functionality but different characteristics. We employ the term “standard” to mean characteristics in contrast to modularity. For example, a one-time use product or, simply, an integral product that is not returnable, falls into our definitional category of the Acronyms: CE, Circular Economy; CSR, Corporate Social Responsibility; DfX, Design for Excellence; ESG, Environment, Social, Governance; SCP, Sustainable Consumption and Production; SD, Sustainable Development; SSCM, Sustainable Supply Chain Management. * Corresponding author. E-mail addresses: ulku@dal.ca (M.A. Ülkü), jh.om@cbs.dk (J. Hsuan). Contents lists available at ScienceDirect Journal of Cleaner Production journal homepage: www.elsevier.com/locate/jclepro http://dx.doi.org/10.1016/j.jclepro.2016.11.050 0959-6526/© 2016 Elsevier Ltd. All rights reserved. Journal of Cleaner Production 142 (2017) 4230e4242