Modeling oligopsony market for end-of-life vehicle recycling

End-of-life vehicle (ELV) recycling markets in emerging economies are characterized by the existence of plenty of informal dismantlers and a few formal dismantlers. The nature of these markets can be characterized as oligopsony markets, where few buyers (dismantlers) compete to purchase ELVs from a large number of sellers (ELV owners). High initial investment creates a barrier to entry and exit for formal dismantlers, whereas the perfectly competitive nature of the informal dismantling market enables free entry and exit of informal dismantlers. In this paper, we consider a market with one formal dismantler and few homogeneous informal dismantlers, and the dismantlers compete by offering a higher price for ELVs. We develop a system dynamics model to capture the feedback effects of competition in the ELV recycling market where the increase in the price of ELV reduces the profitability of dismantlers, which affects the future price increase of ELV and leads to the exit of informal dismantlers. This, in turn, creates fluctuations in dismantling quantities and scrap supplies leading to fluctuations in scrap prices. Using Indian data, the simulation results show that the competition leads to the higher market price for ELV, but a lower profit for dismantlers and reduced aggregate dismantling capacity due to the exit of informal dismantlers. The market price of ELV will rise by more than 200% in 10 years, whereas the existing informal dismantling capacity reduces to less than 50% during the same period. The higher capacities of the formal dismantler lead to the rapid exit of informal dismantlers thereby diminishing the effects of competition resulting in the lower market price for ELV. From our analysis, we recommend that establishing formal dismantling units with high capacities and vertical integration of vehicle manufacturers and end-of-life management systems aligned with suitable policy instruments will ensure more environmentally sound recycling.