Fairness concerns and extended producer responsibility transmission in a circular supply chain

Abstract

Extended producer responsibility (EPR) is an important policy tool that aims to make manufacturers financially and/or physically responsible for recycling and remanufacturing their end-of-life products. To transfer these responsibilities, a number of manufacturers require their retailers to co-finance the additional investment on EPR through wholesale price markup, possibly leading to retailers' fairness concern issues. Along this line, we consider a two-echelon circular supply chain where a manufacturer transfers its recycling and remanufacturing responsibility to a retailer by determining the wholesale price. Thus, the retailer perceives unfairness and makes the corresponding pricing decisions to resist the manufacturer. To analyze the relationship between fairness concerns and the pricing-based responsibility transmission, we establish a leader–follower Stackelberg game model for this supply chain and compare cases with and without fairness concerns. The equilibrium results indicate that the two agents can achieve a win–win situation if the manufacturer considers retailer's fairness concerns when determining the wholesale price and if the retailer sets a relatively lower price to undertake part of upfront investment to fulfill EPR. We further conduct a survey and in-depth interviews as empirical evidences to support these results derived from our models.