Cost-sharing contract design in a low-carbon service supply chain

Abstract

This paper investigates a service supply chain (SC) consisting of a service provider (SP) who is in charge of carbon emission reduction and service, and a service integrator (SI) who is responsible for low-carbon advertising, considering corporate social responsibility (CSR). Given that SP shares SI’s advertising cost, SI may have three types of cost sharing decisions, namely, not sharing any cost of SP (contract PA), sharing SP’s emission reduction cost (contract PAIE), or sharing SP’s service cost (contract PAIS). We establish three differential game models to explore the optimal decisions, and identify the conditions under which SP and SI would provide positive participation rates. Our findings demonstrate that consumers’ low-carbon preference, and chain members’ marginal profits and CSR behaviors significantly influence the optimal solutions. Furthermore, we indicate that two-way contracts (contracts PAIE and PAIS) could benefit the entire service SC and its members. Specifically, SI prefers contract PAIE when SP’s service cost efficiency is lower, whereas he would rather choose contract PAIS under a higher one. More importantly, contracts PAIS and PAIE would be the potential equilibrium contract when SI has a relatively high marginal profit. When it is sufficiently low, contracts PAIE and PA would be the possible equilibrium contract.