Balancing coopetition in innovation-driven circular business models: the interplay of environmental welfare and competitive advantages

Coopetitive and innovation-driven circular business models (CBMs) are increasingly being proposed to address growing economic and environmental challenges. However, many firms remain hesitant to embrace coopetition, and the adoption of coopetitive models across industries remains limited. This research, as the first attempt to provide a coopetitive and innovation-driven mathematical game-theoretic model in the context of CBMs, explores the potential for environmentally and economically viable innovations within CBMs and analyzes the strategic interactions between coopetitive firms under two distinct power structures. We investigate the conditions under which firms are willing to adopt a coopetition strategy and seek to answer the long-struggling question in the literature regarding the intensity of coopetition between rival firms. We also assess the environmental welfare outcomes of the model and introduce two distinct governmental interventions, each designed to achieve specific objectives. We further relax the power imbalance assumption and conduct a coopetition-based bargaining game between rivals. Our main findings demonstrate that (i) the right choice of power structure not only boosts innovation and environmental welfare within CBMs, it results in higher intensity of coopetition and willingness to collaborate with rivals; (ii) while the proposed supportive mechanisms can encourage firms to cooperate and enhance environmental welfare, they may accelerate the loss of firms’ competitive advantage and CBMs’ financial viability; and (iii) the right choice of supportive mechanism and assigned subsidies can reduce government’s financial burden and strengthen firms’ competitive advantage and environmental welfare. Finally, several managerial and policy implications are derived from the analytical and numerical analyses.