Game Theory Application for Circular Economy Model in Furniture Industry

Abstract

This research proposes a business model for the furniture industry to address the circular economy concept. The circular economy aims to keep resources in use for as long as possible and recover product and material at the end of the life cycle. Game theory is used in this research. The conceptual model proposes rent option, so the end-user is possible to use the furniture in the desired time. Using the rent option to the product could be taken back from the end-user and could be sold or rent it again to another user. The concept of game theory is to formulate and suspect the situations of interaction between players involved, and also decisions taken. Therefore, game theory is used to determine an optimal strategy among players. Player strategies are taken when it has reached the Nash Equilibrium. The proposed model consists of 4 parties, such as the furniture industry, remanufacturer, distributor, and end-user. The payoff is determined for every player to observe each player’s profit in addressing CE. Based on the result, there is one strategy that reached the Nash equilibrium. We also picked out 3 of 162 possible plan that gives the best advantages for all players. Each strategy contains players’ prices decision, and for the end-user decision is the length of rent.