Strategic pathways in industrial symbiosis: from collaboration to encroachment

This study investigates an industrial symbiosis system involving two companies: a supplier produces Product S and generates a by-product, which can be sold to a manufacturer as a substitute for raw material in producing Product M. Products S and M target separate markets. To capitalise on the by-product’s value, the supplier faces a strategic choice: cooperate by supplying the by-product to the manufacturer or compete by encroaching on the manufacturer's market. Using game-theoretic models, we analyse equilibrium production quantities under each strategy, identify the supplier’s preferred strategy, and evaluate its economic and environmental implications. Results show that the supplier prefers encroachment unless the raw material procurement cost is moderate and Product S’s market potential is high. Encroachment consistently harms the manufacturer. However, a market defense strategy, in which the manufacturer offers a higher price for the by-product, can deter encroachment and lead to win–win cooperation. Moreover, the supplier’s profit-maximising strategy does not always align with environmental goals. The market defense strategy can reconcile economic and environmental objectives across a wide range of parameters.