Green design strategies of competing manufacturers in a sustainable supply chain

Abstract

In view of the intensive green product design race in manufacturing industry, we construct Stackelberg models (NMG, OMG, and TMG models) to study the green design competition between two manufacturers with one common retailer. Using analytical and numerical studies, we examine impacts of relevant parameters on optimal decisions and profit of supply chain members, and explore manufacturers’ green design strategy adoption and pricing strategy of supply chain members. Our results show that the ratio of green design’s depressing effect on rival’s demand over stimulating effect on own demand plays an important role. When it is sufficiently large, the prices of non-green product and profit of manufacturers can be counter-intuitively stimulated by green design cost parameter, and depressed by green design’s stimulating effect on own demand. A non-green manufacturer facing a non-green rival will not turn green only when he is much weaker than the rival in terms of market potential, and the adoption of green design is rather easy and has a large ratio between its two effects on demand. Also, a non-green manufacturer facing a green rival can benefit from strategically not adopting green design when demand stimulation is small. The retailer is most likely to be in favor of both manufacturers’ adoption. When a non-green manufacturer turns green, he will always adopt a higher wholesale pricing strategy. The other manufacturer fine tunes wholesale price hinging on the ratio between green design’s two effects on demand. The retailer follows suit when adjusting the retail prices.