Carbon emission reduction and pricing policies of a supply chain considering reciprocal preferences in cap-and-trade system

Abstract

The traditional self-interest hypothesis is far from perfect. Social preference has a significant impact on every firm’s decision making. This paper incorporates reciprocal preferences and consumers’ low-carbon awareness (CLA) into the dyadic supply chain in which a single manufacturer plays a Stackelberg-like game with a single retailer. This research intends to investigate how reciprocity and CLA may affect the decisions and performances of the supply chain members and the system’s efficiency. In this study, the following two scenarios are discussed: (1) both the manufacturer and the retailer have no reciprocal preferences and (2) both of them have reciprocal preferences. We derive equilibriums under both scenarios and present a numerical analysis. We demonstrate that reciprocal preferences and CLA significantly affect the equilibrium and firms’ profits and utilities. First, the optimal retail price increases with CLA, while it decreases with the reciprocity of the retailer and the manufacturer; the optimal wholesale price increases with CLA and the retailer’s reciprocity, while it decreases with the manufacturer’s reciprocity. The optimal emission reduction level increases with CLA and the reciprocity of both the manufacturer and the retailer. Second, the optimal profits of the participants and the supply chain increase with CLA, the participants’ optimal profits are concave in their own reciprocity and increase with their co-operators’ reciprocity. Third, the participants’ optimal utilities increase with CLA and their reciprocity. Finally, the supply chain efficiency increases with the participants’ reciprocity, while the efficiency decreases with CLA.