Pricing Mechanism Design for Centralized Pollutant Treatment with SME Alliances

Yuyu Li, Bo Huang and Fengming Tao
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Yuyu Li: College of Computer and Information Science, Chongqing Normal University, Chongqing 400047, China
Bo Huang: College of Economics and Business Administration, Chongqing University, Chongqing 400044, China
Fengming Tao: College of Mechanical Engineering, Chongqing University, Chongqing 400044, China

IJERPH, 2016, vol. 13, issue 6, 1-13

Abstract: In this paper, we assume that a professional pollutant treatment enterprise treats all of the pollutants emitted by multiple small and medium-sized enterprises (SMEs). In order to determine the treatment price, SMEs can bargain with the pollutant treatment enterprise individually, or through forming alliances. We propose a bargaining game model of centralized pollutant treatment to study how the pollutant treatment price is determined through negotiation. Then, we consider that there is a moral hazard from SMEs in centralized pollutant treatment; in other words, they may break their agreement concerning their quantities of production and pollutant emissions with the pollutant treatment enterprise. We study how the pollutant treatment enterprise can prevent this by pricing mechanism design. It is found that the pollutant treatment enterprise can prevent SMEs’ moral hazard through tiered pricing. If the marginal treatment cost of the pollutant treatment enterprise is a constant, SMEs could bargain with the pollutant treatment enterprise individually, otherwise, they should form a grand alliance to bargain with it as a whole.

Keywords: centralized pollutant treatment; pricing mechanism; small and medium-sized enterprises (SMEs); SME alliances; moral hazard; bargaining game (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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