Abstract
This paper investigates the impact of the subsidy and horizontal strategic cooperation on a green supply chain where two competing manufacturers distribute substitutable green products through exclusive retailers. Models are formulated in three-stage game structures in five different scenarios, where the government organization determines optimal subsidy by pursuing social welfare maximization. Both manufacturers invest in improving green quality levels of products. The study aims to explore the advantage of vertical integration and strategic collusion from the perspective of green supply chain practice in the presence of subsidy. The key contributions from the present study indicate that under competition, members of both supply chains are able to receive higher profits through horizontal collusion, but green quality levels of the product remain suboptimal. If upstream manufacturers cooperate, government subsidy does not necessarily improve product quality level, and the amount of government expenditure increased substantially. By comparing outcomes where members are vertically integrated with scenarios where members make strategic collusion, we found that the former might outperform by later. Cross-price sensitivity appears as a significant parameter affecting supply chain members’ performance and the amount of government expenditure. Cooperation between members at the horizontal level is a more robust strategic measure than vertical integration if consumers are highly price-sensitive.
Highlights
In the past few decades, with increasing environmental awareness, issues on investment in green quality improvement have been regarded as one of the significant solutions to sustainability issues [1, 2]
In the perspective of green product quality, strategic collusion always leads to suboptimal product quality in the presence of subsidy
The significance of vertical cooperation is studied in the literature, we pointed out that the horizontal collusion can serve as a strategic tool for the competing supply chain members to receive higher profits. ird, in the presence of collusion, government expenditure increased but not product quality
Summary
In the past few decades, with increasing environmental awareness, issues on investment in green quality improvement have been regarded as one of the significant solutions to sustainability issues [1, 2]. Our study is closely related to three different streams of research such as (i) decision under supply chain competition, (ii) supply chain decision under price and green quality level-sensitive demand, and (iii) government subsidy on green technology investment. Our work is closely related to Li and Li [37] and Yang et al [49], where the authors explored the characteristics of optimal decisions under competition He et al [50] studied the impact of subsidy in a dual-channel closed-loop supply chain and found that higher subsidy can benefit consumers but not necessarily improve environmental performance. We consider two competitive SCs, each of which consists of one manufacturer and one retailer and discuss the scenarios where two upstream manufacturers receive subsidies based on green technology investment. Comparative analysis among optimal decision in five scenarios can help policymakers to understand how strategic cooperation affects the green quality of the product and explore the trade-off between expenditure and social welfare optimization goal
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