Supply Chain Cooperation with Price-Sensitive Demand and Environmental Impacts

Yujie Xiao, Shuai Yang, Lianmin Zhang and Yong-Hong Kuo
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Yujie Xiao: Jiangsu Key Laboratory of Modern Logistics, School of Marketing and Logistic Management, Nanjing University of Finance and Economics, Nanjing 210046, China
Shuai Yang: School of Economics and Management, Changshu Institute of Technology, Changshu 215500, China
Lianmin Zhang: School of Management and Engineering, Nanjing university, Nanjing 210093, China
Yong-Hong Kuo: Stanley Ho Big Data Decision Analytics Research Centre, the Chinese University of Hong Kong, Shatin, New Territories, Hong Kong, China

Sustainability, 2016, vol. 8, issue 8, 1-13

Abstract: In this paper, we consider a two-echelon sustainable supply chain with price-sensitive demand. The government taxes the carbon footprint of each item caused by producing, transporting, and consuming the products. Both the supplier and retailer can exert efforts to reduce the carbon footprint. In a non-cooperative setting, the government only taxes the supplier, so that the retailer has no incentive to exert any effort to reduce the carbon footprint and the supplier merely decides on the selling price to maximize its own profit. We develop a centralized supply chain and show that there is an optimal solution to maximize the channel profit. Since the centralized policy may not be always not practical, we propose a tax-sharing contract, where both parties profit from the carbon footprint reduction. This problem is modeled as the Stackelberg game and Nash game. The results show that the leader has more power than the follower, which results in more profit. The Stackelberg game provides boundaries for both parties’ profits in the Nash game. Although the tax-sharing contract does not result in full cooperation, its efficiency is still much higher than that of the non-cooperative case. The results are illustrated with some numerical experiments.

Keywords: game theory; sustainable supply chain; carbon footprint; government intervention (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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