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January 23, 2006

Electronics Recycling.

I was rather saddened by this post by James Hamilton over at Econbrowser. I expected a Professor of Economics to dig a little deeper into the subject.

Leave aside the electronics recycling in Maine, which is following the absurd EU method (vastly better to put a deposit on the items which is collectible by those who turn them in for recycling, like with drinks cans) and look only at the Hewlett Packard toner and cartridge recycling scheme. I’m simply astonished that anyone would think this is being done by HP for environmental reasons.

Sure, they are playing on the environmental desires of their customers, but that’s rather different.

Think about how the printer business works for a moment. The actual machine is sold at or below cost. Profit comes from selling the refills of ink or toner. That’s why the refill for your ink jet printer can cost more than you paid for the whole thing in the first place....and it came with a full cartridge too.

This model is sometimes called the "Gillette" one, after the razor manufacturers who would almost give away the razor in order to sell a consistent stream of fresh blades.

OK, fine. So what is the biggest risk to such a model? That some low cost upstart will begin to make compatible cartridges for your printers of course. And yes, there have been a number of court cases over the IP rights to be able to do this, almost all of them won by the original manufacturers.

This leaves just one further possibility. What if used cartridges can be refilled? So people might go round collecting the old ones, refilling them with generic ink and then selling them cheaper than the new ones.

And indeed there are many companies that do just this.

So, if you were numero uno in the printer business, all of your profits coming from the sale of refills, what would you do?

Yes, you’d set up a "recycling" scheme to take the used versions of your product off the market. You’d claim to be terribly environmental, you’d pay for the shipment back to your plant of all of the old ones, and then you’d cut them up into plastic granules then sort of wonder what you were going to do with that stuff.

There’d also be a few things that you would limit your recycling system to. For example, you wouldn’t recycle other companies’ products, paying their shipping and so on, because your aim is to starve the second hand market of materials, not to recycle per se:

  HP is only able to recycle HP original print cartridges.

Cartridges can usually only be reused once so you wouldn’t recycle those that had already been refilled:

We also do not accept cartridges that have been refilled or remanufactured.

It does really rather come down to what you mean by recycling I suppose. Taking a plastic box and refilling it with ink sounds like recycling to me but that’s the thing that the HP program is specifically set up to prevent. Rather, that program is a monopolist attempting to retain its monopoly and thus be able to continue to charge insanely high prices for ink refills.

One more little factoid. If you were a rival printer and ink/toner manufacturer, what would you be doing? Yes, you’d try to undermine your rival’s profits by collecting those used empties, refilling them and thus cutting into their income stream.

In recent years the largest collector and refiller of HP toner cartridges has been Lexmark. Yes, that’s right, the rival printer manufacturer.

Isn’t that what economics is supposed to be? A method of explaining, exploring the incentives which drive, the things that people and organizations do?

(I realize this sounds rather grumpy. Sorry, MondayMorningItis.)

January 23, 2006 in Environmentalism | Permalink

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