Analyses of the reward-penalty mechanism in green closed-loop supply chains with product remanufacturing

Abstract

In recent years, the manufacturer has received pressures from both consumers and government regarding the environmental awareness. The government has forced the manufacturer through regulations to take care their end-of-life products for reducing the environmental damage. Meanwhile, an increase in the consumers’ environmental awareness leads to a competitive advantage to the manufacturer who has environmentally friendly products and processes. This study considers the green efforts from the manufacturer and retailer to deal with the government regulations and the consumers' environmental awareness. The purpose of this study is to investigate the behavior of supply-chain members in the green supply chain management under the reward-penalty mechanism from the government. Under the game-theoretical settings, the manufacturer seeks to maximize his/her profit by considering the optimal behaviors of the retailer and/or independent third party. The equilibrium solutions of the proposed models are obtained in the closed-form format. We found that the return rate and green effort can be improved by the reward-penalty mechanism. When considering decentralized channels under the reward-penalty mechanism, the manufacturer collects used products is deemed more effective when he/she cannot offer a higher transfer price.