Case in Point: In reusable water bottle industry, dealing with a possible toxic problem

January 24

The big idea: When a substance, such as bisphenol A (BPA) or brominated flame retardants (BFRs), is identified, it presents companies with the difficult decision of whether to replace the substance in their products or to wait to learn more about the substance’s potential risk or regulatory status. Companies can also end up “competing on toxicity” — to be the first to bring to market a solution free of the substance. It is not clear, however, if this competition increases profits or benefits society as a whole.

The scenario: In 2007 and 2008, market leaders in the reusable water bottle industry, CamelBak and Nalgene, faced a dilemma. Although their consumer base was growing, this expansion was hindered by concern that BPA, a component of the polycarbonate plastic used to make reusable water bottles, might harm human health.

Consumer fears surrounding BPA intensified when the “Today” show aired an expose on the potential dangers of BPA. Eastman Chemical had developed a potential replacement, Tritan, which was comparable in performance to polycarbonate and did not contain BPA. Taking into account consumer sensitivity to BPA, potential regulation and competition to provide a solution, CamelBak and Nalgene had to decide whether to incur the cost to replace polycarbonate with BPA-free Tritan.

Our work suggests that competition between companies is not always the best way to eliminate a substance. For example, competition to replace a substance can cause companies to act in a self-interested way where they defer the replacement of the substance to postpone investment costs, but then hurt their own profits and that of competitors by letting consumers leave the market.

Many environmental experts believe that companies should never compete on toxicity. “We are trying to help companies understand that progress to solve this problem will not evolve as rapidly if industry attempts to use toxicity as a means of differentiating products,” says James Ewell, sustainable materials director at the nonprofit organization GreenBlue.

The resolution: By the end of 2008, both CamelBak and Nalgene had developed their own BPA-free Tritan water bottles. We believe, however, that rather than compete on toxicity, an opportunity might have existed for them work together to eliminate the use of BPA in the reusable water bottle market.

Manufacturers can earn higher profits when they collaborate to replace a substance, even when their shared costs to replace are greater than the sum of their individual costs.

The lesson: Instead of competing on toxicity, collaborating to replace a substance can be a viable option from both an environmental and a profit perspective.

— Tim Kraft and Gal Raz

Kraft and Raz are business professors at the University of Virginia Darden School of Business.

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