Optimal Strategy and Performance for a Closed-Loop Supply Chain with Different Channel Leadership and Cap-and-Trade Regulation

Yuhao Zhang, Qian Zhang (), Ren Hu and Man Yang
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Yuhao Zhang: School of Business, Jiangsu University of Science and Technology, Suzhou 215600, China
Qian Zhang: School of Economics and Management, Huzhou University, Huzhou 313000, China
Ren Hu: School of Business, Jiangsu University of Science and Technology, Suzhou 215600, China
Man Yang: Logistics Engineering College, Shanghai Maritime University, Shanghai 201306, China

Sustainability, 2025, vol. 17, issue 3, 1-41

Abstract: Cap-and-trade is widely recognized as an effective mechanism for curbing carbon emissions, and it significantly influences the operational decisions within supply chains. This study investigates a three-echelon closed-loop supply chain (CLSC) consisting of one original equipment manufacturer, one traditional retailer, and one independent third-party collector. The manufacturer invests in cleaner technologies to produce green products and remanufactures new products from used items recycled by the third-party collector. Considering different channel power structures, three Stackelberg game models are developed, and their optimal solutions are derived using the backward induction. Additionally, the combined effects of remanufacturing-related and carbon-related parameters on economic and environmental benefits as well as social welfare are investigated under different settings. Moreover, the derived results are validated via numerical simulation. The findings indicate that: (1) Each channel member is incentivized to act as the leader role within the CLSC to maximize profits. (2) A loose cap-and-trade regulation is conducive to enhancing the emission abatement rate, collection rate, and overall performance for the CLSC. (3) The retailer-led model is the best option for capturing more economic benefits and social welfare, while the third party-led model can always achieve the best environmental performance regardless of carbon trading price. These research findings can provide valuable insights for policymakers and decision makers engaged in CLSC.

Keywords: CLSC; cap-and-trade; channel leadership; emission reduction; Stackelberg game (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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