Using by-product synergy for competitive advantage

We study how a manufacturer can leverage by-product synergy for competitive advantage. By-product synergy is defined as the conversion of a firm's waste stream from a manufacturing process into valuable feedstock for another manufacturing process. The distinguishing operational characteristic of by-product synergy is that quantities of the primary product and by-product are linked, with production of the primary product defining the upper bound of the quantity of the by-product. Optimization of a by-product synergy operation requires the firm to shift from a "product and waste" mentality to a "product and product" mentality, and thereby actively manage the quantities of both products to maximize profit. Conditions in the two markets determine whether the firm should increase production of the primary product in order to capture value in the by-product market ("interdependent" markets), or only convert part of its waste into by-product so as not to flood the by-product market ("separable" markets).