Competition model and contract design for supply chain with green products under yield uncertainty

Abstract

This paper considers a supply chain (SC) in which the manufacturer produces and sells green products to consumers through two competing retailers. We assume that the manufacturer's yield is uncertain, and then conduct the integrated and the decentralized SC models. A comparison analysis of these two SC models is further performed. The results show that the profit under the integrated SC model is higher than that under the decentralized SC model, which means that there exists double marginalization under the decentralized SC. Then, the cost-sharing contract and the revenue-sharing contract are introduced to improve the decentralized SC. We find that both contracts can not only enable the manufacturer to improve the green degree, but also enable the retailers to order more green products. The main difference between these two contracts is dug out: Compared the situation without any contract, the manufacturer charges a higher wholesale price under the cost-sharing contract, but charges a lower wholesale price under the revenue-sharing contract. In addition, the profits of all SC members can be improved after reasonable designs of these two contracts, thus achieving the Pareto improvements. Finally, we introduce numerical analysis to illustrate and exhibit theoretical conclusions.