1617. The Role of Regulation in Sustainable Luxury: Theory and Experiments on Donations and Exclusivity
Invited abstract in session WC-47: Game Theory in Retail I, stream Retail Operations.
Wednesday, 12:30-14:00Room: Parkinson B08
Authors (first author is the speaker)
| 1. | Burak Gokgur
|
| Sabancı University | |
| 2. | Ayse Kocabiyikoglu
|
| Sabanci University | |
| 3. | Ismail Erzurumlu
|
| NEOMA Business School |
Abstract
Luxury brands face increasing pressure to adopt sustainable practices while preserving exclusivity. Traditional methods like product incineration maintain scarcity but conflict with sustainability, whereas donations introduce luxury goods into the market, potentially diluting exclusivity. This raises a key question: Can luxury brands engage in product donations as a viable alternative to incineration?
We examine the strategic role of regulatory agencies in designing donation-based incentive mechanisms that promote sustainability while maintaining luxury firms’ profitability. Through behavioral experiments, we reveal consumer preferences regarding donations. Building on these insights, we develop a rational expectations model capturing interactions among a luxury firm, a regulator, and a mixed consumer market. In a Stackelberg framework, the regulator sets incentives, and the firm decides on product donations. We further explore how market-specific factors influence optimal incentive levels, emphasizing the necessity of transparent communication between regulators and firms to avoid unintended consequences. Finally, we conduct additional behavioral experiments to examine whether the strategic interactions between the firm and regulator observed in practice align with the analytical outcomes. These insights offer valuable guidance for both luxury brand managers and policymakers in balancing exclusivity, sustainability, and regulatory objectives.
Keywords
- Revenue Management and Pricing
- OR in Sustainability
- Behavioural OR
Status: accepted
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