Differential game theoretic analysis of the dynamic emission abatement in low-carbon supply chains

Longfei He, Baiyun Yuan (), Junsong Bian and Kin Keung Lai ()
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Longfei He: Tianjin University
Baiyun Yuan: Henan Polytechnic University
Junsong Bian: La Trobe University
Kin Keung Lai: Shaanxi Normal University

Annals of Operations Research, 2023, vol. 324, issue 1, No 13, 355-393

Abstract: Abstract This paper studies the impact of bilateral participation strategy on the dynamic emission-reducing behaviors and associated performance of low-carbon supply chains using differential game models. We first consider a dyadic supply chain comprising one supplier and one manufacturer in the base model and derive the equilibrium solutions of dynamic emission abatement in decentralized and centralized systems, respectively. In the decentralized supply chain, we consider both unilateral sharing and bilateral participation contracts and examine the feedback equilibrium strategies and trajectories of emission abatement of all parties. By comparison, we find that the bilateral contract leads to lower emission abatement and higher profits of all players and the system than that under unilateral sharing contract. Meanwhile, we show that the properly-designed bilateral participation contract can coordinate the decentralized dyadic supply chain. By extending the base model, we further figure out the equilibria and optimal trajectories for the dynamic cooperative emission abatement and the associated mechanism design in a supply chain with two competing suppliers and one manufacturer. Interestingly, we find that the bilateral participation contract can also coordinate the competing channels with competitive or complementary components at the upstream level. We uncover that the bilateral participation contract is effective in coordinating supply chains with dynamic cooperative emission abatement since it can overcome the disadvantage of uneven distribution of emission-reducing capability endowments among chain members. Finally, we also conduct computational and sensitivity analyses to illustrate the previous results. These findings provide potential implications for firms’ dynamic cooperation in emission abatement.

Keywords: Low-carbon supply chains; Cooperative emission abatement; Differential games; Bilateral participation contracts; Coordination (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-021-04134-9

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