Coordination of green quality and green warranty decisions in a two-echelon competitive supply chain with substitutable products

Abstract

Abstract The green quality and warranty period of products are two major factors which affect consumers’ purchasing behavior. Recently, there has been growing research interests in green supply chain coordination. However, to the best of our knowledge, coordination of green quality and warranty decisions for substitutable products in a competitive supply chain has not yet been investigated in the literature. In this paper, a monopolistic manufacturer aims to release a new substitutable green product in addition to the conventional non-green product and determine the green quality level of the new product. On the other side, the retailers compete with each other on the warranty period offered to the consumers for the green product. Firstly, the optimal decisions of the supply chain members are evaluated under (1) Cournot, (2) Collusion, and (3) Stackelberg behavior of competing retailers. The corresponding closed-form optimal solutions for decisions are obtained. Moreover, a new multilateral compensation-based wholesale price contract is developed to coordinate the decisions across multiple-links. Afterwards, an industrial case study is provided to demonstrate the performance and applicability of the proposed models. The results indicate that coordinating the manufacturer’s green quality and competing retailers’ warranty periods not only increases the economic profitability of all supply chain members compared to the decentralized model, but also increases the green quality of the new released product and the warranty periods offered by competing retailers. Therefore, under the proposed coordination model, the consumers can enjoy products with higher green quality and longer warranty period. This is especially important for environmentally conscious and risk-averse consumers. Although coordinating decisions for substitutable products under competition is a complex decision-making process, the proposed contract is highly sophisticated and beneficial from both economic and environmental aspects. Moreover, the proposed contract not only coordinates the manufacturer and competing retailers, but also fairly shares the extra benefits among them.