1. Introduction
The transition toward a CE has increasingly been framed as a challenge of CBM Innovation, technological upgrading, and regulatory alignment. Yet despite a proliferation of CBM archetypes—ranging from product-as-a-service and remanufacturing to reuse platforms and material recirculation—empirical evidence suggests that large-scale circular transformation remains limited. Global material extraction continues to rise, secondary material markets remain underdeveloped, and circular initiatives often struggle to scale beyond pilot stages. This paradox indicates that the primary barrier to circular transition may not lie in the absence of innovative business models per se, but rather in structural economic frictions embedded within existing market architectures. In particular, persistent information asymmetries, fragmented lifecycle data, and high transaction and coordination costs inhibit investment, trust formation, and cross-actor collaboration across product value chains.
From an innovation economics perspective, circular markets are characterized by uncertainty regarding product composition, durability, reparability, residual value, and environmental performance, attributes that frequently function as credence characteristics and are difficult to verify ex ante. Under such conditions, adverse selection, moral hazard, and risk premia constrain the emergence of secondary markets and performance-based contractual forms. Regulatory initiatives such as the European Union’s DPP seek to address these frictions by institutionalizing standardized, interoperable lifecycle data infrastructures. However, while existing scholarship has examined DPPs primarily through technical, compliance-oriented, or sector-specific lenses, their broader economic implications for market formation, innovation dynamics, and competitive restructuring remain insufficiently theorized. This article advances the argument that DPPs should be understood not merely as traceability tools, but as institutional innovation infrastructures capable of reshaping information flows, reducing transaction costs, and enabling the scaling of circular markets.
Against this background, this article addresses the following research question: How do DPPs function as institutional innovation infrastructures that reshape information asymmetries and enable the formation and scaling of circular markets? Building on innovation economics, transaction cost theory, and institutional analysis, the study develops a conceptual framework explaining the economic mechanisms through which standardized, interoperable lifecycle data alter coordination dynamics across product ecosystems. Specifically, it identifies four interrelated mechanisms—information asymmetry reduction, transaction cost mitigation, capability amplification, and circular market formation—through which DPP infrastructures influence competitive behaviour, contractual innovation, and investment incentives. By reframing DPPs as market-shaping governance architectures rather than compliance instruments, the paper contributes to the literature on innovation systems and institutional change, offering a systemic account of how data governance infrastructures can catalyse circular business model innovation and industrial transformation.