A multiperiod competitive supply chain framework with environmental policies and investments in sustainable operations

Abstract

In this paper, we develop a supply chain network model in which firms compete noncooperatively in an oligopolistic manner in discrete time periods over a finite planning horizon. Each firm makes a strategic decision regarding its target sustainability rating and tactical decisions of product flows, in the presence of consumer preferences for sustainability and a variety of environmental policies. Such policies include ecological taxes for different types of pollution, subsidies for pollution control, command-and-control policies, as well as hybrid approaches with different possible combinations of policy instruments. Furthermore, our model captures dynamic changes in not only the consumer purchasing behavior, but also the operational costs and environmental pollution, as well as government environmental policies. A series of numerical examples evaluate the impacts of consumer preferences for sustainability and environmental policies on firms’ profitability and their environmental footprint. The results indicate that firms will improve sustainable operations as long as it is financially valuable for them to do so, which mandates governments and firms to educate consumers about sustainability. Numerical examples also reveal under which environmental policies sustainability can be profitable.