Slow or fast? The controversy between dematerialisation and closed-loop as circular economy technical approaches

Dematerialisation and closed-loop strategies stand as two pivotal technical approaches for achieving the circular economy, both recognised for their potential to enhance economic performance and environmental sustainability by industries. However, previous literature has predominantly focused on optimising strategic combinations at the operational level, while overlooking the critical issue of choice between these two technological pathways. To address this gap, this study employs gametheoretic analytical models to formulate their impacts on the prices, market demand, profits and environment impact. The findings reveal that production costs within an industry serve as a key mechanism influencing strategy choice: specifically, the closed-loop strategy is more advantageous for low-and-medium-cost industries, whereas the dematerialisation strategy proves more beneficial for high-cost industries. From an environmental perspective, no strategy is theoretically optimal under all conditions. Consequently, we propose a “economic-environmental” conditions framework for the optimal pathways for the circular economy in seven intervals with respect to cost and durability, designed to assist enterprises and governments in reducing sunk costs associated with exploring and investing in circular economy pathways. For the firm managers: (1) In the low-and-medium-cost industries, implementing closed-loop strategies can help firms achieve greater economic benefits. They are advised to increase investment in closed-loop systems, such as cascading utilisation and remanufacturing process innovation, to reduce the marginal environmental impact of trade-in activities. This approach promotes closed-loop strategies as the optimal solution balancing both economic and environmental goals. (2) In high-cost industries, adopting dematerialisation strategies is recommended as more beneficial. Firms should leverage economies of scale to decrease the marginal environmental impact associated with service provision. Theoretically, under these conditions, all customers are expected to adopt dematerialisation services. (3) Our findings enhance understanding of how these two circular economy approaches address different operational management challenges. Specifically, the closed-loop strategy can help firms tackle product durability issues arising from product failures through business model innovation, whereas the dematerialisation strategy is better suited for products with inherently high durability. For policymakers: (1) We provide applicability conditions and a conceptual framework for the two typical circular economy technical approaches, assisting governments in designing industry-specific incentives and policies to improve policy effectiveness and reduce sunk costs. (2) Our results help policymakers understand the underlying impact mechanisms of these strategies and, based on the proposed conditions framework, promote each strategy’s dual optimisation of economic and environmental objectives.