A game theory framework for newly launched greening product in two-echelon supply chain

Abstract

A two-echelon supply chain model is considered where one manufacturer and one retailer reduce the customers' sensitivity to the product price and stimulate the demand of the product by introducing facilities such as the product's greenness, service level and promotional effort. They share the costs jointly on the above facilities following some agreements. The models are formulated as profit maximisation problems for the whole system and the individual chain members. The game theoretical approach is used to solve the models under centralised and decentralised decision scenarios. Several particular models are studied by considering one or two facilities (greenness, service level and promotional effort) at a time. Finally, numerical experiments are conducted and some managerial decisions are presented from the optimal results and sensitivity analyses. It is demonstrated that the greenness, service level and promotional effort activities stimulate higher demand and fetch more profits for the supply chain and its members.