Game analysis of environmental cost allocation in green supply chain under fairness preference

Abstract

Cost allocation is a way to promote enterprises to actively implement green supply chain management, and the behavior preference of decision makers will affect the process. This paper considers the situation that manufacturer has fairness preference and retailer is fair neutral, and constructs a secondary supply chain composed of a single manufacturer and a single retailer. We explore two models of cost allocation—based on the Stackelberg model, the impact of retailers’ nonparticipation/participation in cost allocation on supply chain is discussed, while through the Nash bargaining model, the range and optimal solution of the environmental cost allocation ratio are determined. And we show how product wholesale prices, retail prices, green innovation investment, and the optimal ratio of environmental cost allocation are influenced by fairness preference. The results show that retailers’ participation in environmental cost allocation will increase the level of product greenness and make the entire supply chain Pareto optimal. The strong fairness preference of manufacturer will weaken the positive effect of retailers participating in cost allocation on the supply chain. Therefore, the government and enterprises should adopt incentive measures to actively promote the collaboration between channel partners in order to share the environmental cost, and manufacturers should pay less attention to fairness.