Cost-sharing contract design between manufacturer and dealership considering the customer low-carbon preferences

Abstract

Manufacturers and dealerships usually have a long-term cooperation in selling low-carbon products produced by signing a contract without considering the dynamic changes in consumer’s low-carbon preferences. Consumers’ low-carbon awareness and the low-carbon reputation of those low-carbon products occasionally alternate affected by the market circumstances, which will influence the selling of low-carbon products. This paper focuses on the contract design between a manufacturer and a dealership using Stackelberg differential game models to formulate the long-term contract between a manufacturer and a dealership. To promote the low-carbon reputation of low-carbon products, two cost-sharing contracts, including a one-way cost-sharing contract (OWC) and a two-way cost-sharing contract (TWC), are proposed. The manufacturer in the OWC contract provides a certain amount of subsidies to incentivize the dealership. The manufacturer and the dealership share costs in the TWC contract. Besides, dual-channel models are also analyzed as an extension of the proposed model. Several findings were obtained by solving and analyzing the proposed game models. The manufacturer’s emission reduction efforts and the dealership’s low-carbon promotion efforts are influenced by dealership’s cost coefficient related to the promotion of low-carbon product, low carbon reputation sensitivity coefficient of consumers, influence coefficient of manufacturer’s emission reduction efforts on low-carbon reputation and etc. The proposed cost-sharing contracts improve the manufacturer and the dealership’s efforts by changing the factors. The OWC contract can achieve Pareto improvement, and the TWC contract can realize the coordination between the manufacturer and the dealership. The optimal conditions for its contract choice are also proposed from the manufacturer’s point of view. This paper also provides valuable insights for companies in the supply chain to design suitable contracts to coordinate the supply chain stakeholders’ activities, especially in promoting low-carbon efforts in a long-term cooperation.