Decision models of pricing and carbon emission reduction for low-carbon supply chain under cap-and-trade regulation

Abstract

All carbon emissions generated by supply chain (SC) members should be taken seriously. This paper constructs low-carbon SC models consisting of one supplier and one manufacturer under three power structures: supplier-led power structure, manufacturer-led power structure, and Nash competition power structure. Based on differential game theory, we explore SC members' optimal pricing and carbon emission reduction decisions by considering the impacts of consumers' low-carbon preference, cap-and-trade regulation, and power structure from a long-term perspective. The results indicate that consumers' low-carbon preference always benefits the environment and low-carbon SC performance. However, whether cap-and-trade regulation can improve the environment and low-carbon SC performance depends on the cap and the carbon trading price. Under three power structures, we provide the government with two important threshold caps: one threshold cap ensures that SC members can benefit from cap-and-trade regulation; another threshold cap ensures that SC members can obtain positive profits under cap-and-trade regulation. This paper also reveals that the decision-making priority is not a necessary condition for SC members to maximize profits.