Abstract
To encourage firms to engage in green production, two different types of investment funding, namely external funds from agencies outside the supply chain (e.g., government subsidy), and internal funds from supply chain partners (e.g., greening cost-sharing with the retailer), are investigated in this paper. Based on game theory, the decision-making behavior and profits of a competitive supply chain consisting of a green manufacturer, a regular manufacturer, and a retailer are analyzed under both funding schemes. The results show that while both government subsidy and greening cost-sharing contract can achieve the goals of increasing a product’s degree of greenness and increasing the sales of green products, there are differences between these two methods in reaching these goals. Further, both via theoretical and numerical analysis, we find that although both the green manufacturer and the retailer can greatly benefit from government subsidy and greening cost-sharing contract, they may have different preferences regarding these two methods, which are mainly related to the size of the government subsidy, the fraction of greening cost-sharing with the retailer, the Research and Development (R&D) cost coefficient, the greenness sensitivity coefficient, and price sensitivity coefficient. Finally, the supply chain members’ behaviors (including the production and pricing decisions and, the choice of funds investment) are largely affected by the government subsidy mechanism.
Highlights
More and more people have recognized the significance of sustainable development because of the frequent occurrence of extreme weather events, the shortage of resources, as well as consumers’ increasing awareness of environmental protection, which impels the rapid development of green production and a low-carbon economy [1,2]
The typically huge investment cost associated with green technology inhibits the manufacturer from offering green products and, as a result, investment funding plays an important role in the development of green supply chains
We first consider a benchmark in the form of a partially centralized system consisting of the green manufacturer and the retailer, and study the decentralized system with the government subsidy method and the greening cost-sharing contract to derive the optimal degree of product greenness, retail prices, sales, and expected profits of supply chain members
Summary
More and more people have recognized the significance of sustainable development because of the frequent occurrence of extreme weather events, the shortage of resources, as well as consumers’ increasing awareness of environmental protection, which impels the rapid development of green production and a low-carbon economy [1,2]. The overwhelming majority of literature papers have focused on only one source of funds to promote green and sustainable development, while neglecting the differences between external funds and internal funds regarding the degree of greenness of the products and the sales volume, as well as the supply chain members’ preferences for these two different methods. In relation to the last point, we go on to examine whether the size of the government subsidy, the greening cost-sharing fraction, and the R&D cost coefficient affect the supply chain members’ preferences for either of these two methods To address these questions, we consider a supply chain comprising a single green manufacturer and a single regular manufacturer that sell their products through a common retailer to end consumers. A numerical analysis is provided in Section 5 and Section 6 concludes the paper
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