Contracting emission reduction for supply chains considering market low-carbon preference

Abstract

Under the low-carbon environment, we focus on a dyadic supply chain with a manufacturer and a retailer to develop a game model for studying the issues of carbon emission reduction within the retailer dominant and the power balanced cases, respectively. The consumers are assumed to be of environmental consciousness and accordingly will note the carbon footprint of product when shopping. We find that with the cost-sharing and the wholesale price premium contracts, the retailer can achieve the goal of jointly reducing carbon emissions with the manufacturer, which can promote the manufacturer to increase the carbon emission reduction rate and raise the profit of supply chain. In both the retailer dominant case and the power balance case, the cost-sharing contract can result in Pareto improvement in the performance of both the manufacturer and the retailer. However, the wholesale price premium contract can increase the profit of the supply chain only when the level of low carbon preference is high in the retailer dominant case, and it can also represent a Pareto improvement for the supply chain even if when the level of low carbon preference is low in the power balanced case.