Research: The Unintended Consequences of Right-to-Repair Laws
Right-to-repair legislation is designed to break manufacturers’ monopoly on the repair market, thereby allowing consumers to hold on to their old products longer, so they do not throw away used products and buy new ones as quickly. This would reduce the environmental impact by reducing e-waste and new production. New research, forthcoming in the journal Management Sciencechallenges this conventional wisdom and finds that the right-to-repair legislation may in some instances lead manufacturers to flood the market with cheap goods, thereby damaging the environment, and in other instances lead manufacturers to dramatically raise the price of goods, thereby hurting consumers. Lawmakers should examine specific product categories, including their production cost and environmental impact, and guard against sweeping, one-size-fits-all legislation.
The growing “right-to-repair” legislative movement seeks to make it easier and cheaper for consumers to fix their products by requiring manufacturers to share repair information, provide diagnostic tools, and supply service parts. Various right-to-repair laws have been considered and passed around the world. In Europe, manufacturers are legally required to supply spare parts for up to 10 years. In the U.S., President Biden signed a sweeping executive order in July 2021 directing the FTC to draft new right-to-repair regulations, and various U.S. states have passed some version of right-to-repair legislation.
Repair advocates argue that such legislation will break manufacturers’ monopoly on the repair market and benefit consumers. They further contend that easier repair allows consumers to hold on to their old products longer, so they do not throw away used products and buy new ones as quickly. This would reduce the environmental impact by reducing e-waste and new production. Our researchforthcoming in the journal Management Sciencechallenges this conventional wisdom and finds that the right-to-repair legislation may not benefit either consumers or the environment.
The key is that manufacturers might strategically adjust new product prices to mitigate their foreseeable profit loss from the right-to-repair legislation. Will manufacturers follow a margin strategy and raise new product prices to capitalize on easier repair? Will manufacturers follow a volume strategy and cut new product prices to lure consumers into replacing instead of repairing a glitchy product? Such price responses can have nuanced implications for both consumers and the environment.
We built an economic model to analyze manufacturers’ reactive pricing strategies. Our model examined “durable goods” that are used repeatedly over time, such as cars, tractors, refrigerators, and cell phones. We considered features of durable goods in the model, such as the substitution between new products and used products and between manufacturer repair and independent repair. In addition to studying how manufacturers change prices in response to the right-to-repair legislation, our model tracks consumer surplus, a measure of how well consumers are doing, and assesses total environmental impacts over a product’s life cycle, including the impact in the production phase (e.g., water pollution), the impact during use (e.g., vehicle emissions), and the impact in the disposal phase (e.g., waste).
It turns out that how manufacturers respond depends crucially on how much it costs to produce the product in question. In the market for products that are relatively cheap to make — for example, smartphones and microwaves — our model predicts that a right-to-repair bill will likely see manufacturers lower new product prices and flood the market. This reduces the appeal of repair because consumers would rather buy a brand-new product at a low price than fix a used product. Therefore, slashing prices would help manufacturers avoid old products cannibalizing the sales of new ones, i.e., allaying the “demand cannibalization effect.” While a lower price benefits consumers, it also motivates more consumers to purchase new products that translate into higher new production volume and eventually more e-waste. As a result, the environmental impact increases.
In contrast, when production costs are high, new products inevitably come with a steep price tag. To overcome this and stimulate demand, manufacturers are likely to offer free repair services to whet consumers’ appetites. This is a “value enhancement effect,” i.e., the repair service could make the products last longer and hence, increase the consumers’ valuation of the product. Since repair is offered free of charge, the right-to-repair legislation — along with its resulting lower independent repair costs — is unlikely to make much of a difference.
In instances where production costs are intermediate, our model predicts that the outcome is a combination of the above effects. When the right-to-repair legislation is introduced, independent repair costs start to fall, and manufacturers are likely to lower the prices of their new products in order to entice customers away from the repair option (similar to what happens in the low production cost scenario). However, a continual price cut would eventually leave the profit margin too thin. If independent repair were widely available, products would have a longer lifespan, which makes them more valuable. Manufacturers would have the incentive to take advantage of that increased value; in fact, they are likely to switch tacks and raise new product prices while offering free repair service (similar to what happens in the high production cost scenario).
A higher price hurts consumers, but it does not necessarily benefit the environment, either. Even though people might buy fewer new products, easier repair could lead more consumers to use old, energy-inefficient products, resulting in a higher environmental impact. The worst-case scenario could occur for products that have a high environmental impact when they are in use — such as cars, trucks, refrigerators, or other major appliances. Manufacturers may raise prices, and with a flourishing repair market, more people might end up buying and using old power guzzlers. All told, a right-to-repair bill in this scenario can create a “lose-lose-lose” situation that compromises manufacturer profit, reduces consumer surplus, and exacerbates the environmental impact despite repair being made easier and more affordable.
Our results tell a cautionary tale about the unintended consequences of the right-to-repair legislation. We highlight the inextricable link between repair and product markets and urge lawmakers to take a more holistic approach in assessing the repercussions of the right-to-repair legislation. Ignoring the strategic response from the product market (which is indeed often overlooked in the current debate on the right to repair) will paint an incomplete picture and even lead to flawed conclusions. Instead, lawmakers should examine specific product categories, including their production cost and environmental impact, and guard against sweeping, one-size-fits-all legislation.