Decision-Making in a Closed-Loop Supply Chain under Fairness Concerns and Optimal Subsidies

Abstract

Government subsidies have played an important role in closed-loop supply chain (CLSC) waste utilization. However, when the retailer is disadvantaged in the supply chain cooperation and does not have access to subsidies, fairness issues may arise that affect pricing and subsidies. Therefore, this study aims to examine the optimal solutions for a government-led CLSC with remanufacturing subsidies and fairness concerns. We develop a three-echelon game with a government, a manufacturer, and a fairness-concerned retailer and derive the solutions for four scenarios: the fairness-neutral model, without fairness issues; the retailer has fairness concerns about the distribution of supply chain profits, and the concerned behavior is recognized by the manufacturer; the retailer is fairness-concerned, but the manufacturer ignores the concerned behavior; and the centralized scenario. Through the comparative analysis of different models, we design a cooperation mechanism for enterprises. Then, the conclusions are verified by numerical experiments. This study shows the following: (1) The retailer is always willing to maintain fairness concerns, but this does not affect the amount of collection. (2) The government will consume more subsidies because of the fairness issue ignored by the manufacturer. (3) Only when unit waste pollution is relatively low while the degree of fairness concerns is significant, will the manufacturer recognize the fairness concerns to reduce its unfavorable impact on profit. The increase in the level of concern can bring more benefits for two enterprises by consuming more subsidies for the highly polluting wastes. (4) A two-part tariff contract can coordinate the enterprises and promote social welfare within a certain parameter range.