Decision-Making in a Closed-Loop Supply Chain under Fairness Concerns and Optimal Subsidies

Zichun Deng, Mohd Rizaimy Shaharudin () and Ming-Lang Tseng
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Zichun Deng: Faculty of Business and Management, Universiti Teknologi MARA, Shah Alam 40450, Selangor, Malaysia
Mohd Rizaimy Shaharudin: Smart Manufacturing Research Institute, School of Mechanical Engineering, Universiti Teknologi MARA, Shah Alam 40450, Selangor, Malaysia
Ming-Lang Tseng: Institute of Innovation and Circular Economy, Asia University, Taichung 413, Taiwan

Sustainability, 2023, vol. 15, issue 9, 1-31

Abstract: Government subsidies have played an important role in closed-loop supply chain (CLSC) waste utilization. However, when the retailer is disadvantaged in the supply chain cooperation and does not have access to subsidies, fairness issues may arise that affect pricing and subsidies. Therefore, this study aims to examine the optimal solutions for a government-led CLSC with remanufacturing subsidies and fairness concerns. We develop a three-echelon game with a government, a manufacturer, and a fairness-concerned retailer and derive the solutions for four scenarios: the fairness-neutral model, without fairness issues; the retailer has fairness concerns about the distribution of supply chain profits, and the concerned behavior is recognized by the manufacturer; the retailer is fairness-concerned, but the manufacturer ignores the concerned behavior; and the centralized scenario. Through the comparative analysis of different models, we design a cooperation mechanism for enterprises. Then, the conclusions are verified by numerical experiments. This study shows the following: (1) The retailer is always willing to maintain fairness concerns, but this does not affect the amount of collection. (2) The government will consume more subsidies because of the fairness issue ignored by the manufacturer. (3) Only when unit waste pollution is relatively low while the degree of fairness concerns is significant, will the manufacturer recognize the fairness concerns to reduce its unfavorable impact on profit. The increase in the level of concern can bring more benefits for two enterprises by consuming more subsidies for the highly polluting wastes. (4) A two-part tariff contract can coordinate the enterprises and promote social welfare within a certain parameter range.

Keywords: government subsidy; social welfare; game theory; closed-loop supply chain; fairness concerns; coordination mechanism (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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