Distribution of profit in a smart phone supply chain under Green sensitive consumer demand

Abstract

Abstract This research work studies a two-member supply chain (that deals in smart phones) consisting of the manufacturer (positioned upstream) and the telecom service provider (positioned downstream). Customers can purchase smart phone handset and service either separately from the two members (free channel) or as a package (bundled channel) from either of the members. The smart phone manufacturer invests in the greening improvement of the product and the customers are sensitive to the greening improvement level. The study considers three power structures for the bundled channel (Manufacturer is the Stackelberg leader - MS, Telecom Service Provider is the Stackelberg leader – TS, and where both the players possess equal power i.e. Vertical Nash- VN) to characterize the optimal decisions of the manufacturer – the smart phone handset unit retail price, the greening improvement level and the optimal decision of the telecom service provider – the amount of subsidy to pay to the handset manufacturer. The novelty of this study comes from the insights derived from the analysis of the green smart phone supply chain. The supply chain player with superior power earns more profit but is dependent on a condition that is a function of greening investment by the manufacturer, customer sensitivity to greening improvement level and customer sensitivity to prices. Also under similar conditions, the study shows that the balanced power structure (VN) is best for the supply chain i.e. supply chain profits are the highest. The insights derived from analysing the impact of greening investment and customer sensitivity to greening on the optimal subsidy amount are new and have not been studied before.