Decisions and coordination in low-carbon supply chains with a wholesale price constraint under government subsidies

Abstract

Motivated by the challenge of meeting carbon-conscious consumers and carbon regulations, this paper expounded on the decisions and coordination in low-carbon supply chains with a wholesale price constraint (WPC). The WPC is the behavior of large retailers (e.g., Walmart, Amazon, and E.Leclerc) that pursue a profit margin that does not fall below a certain level, which can affect supply chain operations. First, we develop a competition model, revealing that the WPC can result in a loss of total supply chain profit and a shortage in carbon emission reduction and then pose systematic challenges. Following this, we design a Nash bargaining-based cooperation model, showing that it can coordinate the supply chain and achieve a continuous allocation of optimal profits according to the bargaining power of firms. Lastly, our extended analysis incorporates the external influence of government subsidies for low-carbon technologies and designs the optimal subsidy mechanism. We demonstrate that, while government subsidies can reduce cost pressures on the supplier and provide incentives to reduce carbon emission, they can also induce the retailer to set a higher WPC for greater profitability, so the performance loss remains prominent. In this circumstance, we construct a Nash bargaining-based cooperation model that can coordinate the supply chain. Overall, our insights can help firms achieve scientific carbon emission reduction and formulate a reasonable WPC, as well as provide a quantitative basis for government carbon regulations.