Impacts of dual carbon emission reduction technology and technology spillovers of deterioration reduction on supply chain system's performances considering government incentives and contract design

Abstract

Investments in carbon emission reduction and deterioration reduction are important aspects for the firms to construct a low-carbon supply chain systems of deteriorating products with the increasing preferences of customers for environmentally friendly and fresh products. In this study we develop a two-echelon supply chain system consists of one manufacturer and one retailer. The manufacturer implements dual carbon emission reduction technology to strengthen the carbon emission reduction efficiency under cap-and-trade regulation and both manufacturer and the retailer invest in deterioration reduction technology to reduce the deterioration and increase the stock level of the fresh items. To increase the demand, the retailer takes the responsibility of promoting the low-carbon and fresh products among the customers. Deterioration reduction technology spills over from the manufacturer to the retailer. Then a differential game model is formulated and the equilibrium strategies are analysed by Stackelberg differential game approach in long term scenario. Numerical analysis has been done to analyse the theoretical results more rigorously by MATLAB software and sensitivity of some major parameters on the demand and profits of the manufacturer and the retailer have also been done to obtain some managerial insights. The impacts of implementing dual carbon emissions reduction technology and the effects technology spillovers are discussed. The results show that when the manufacturer invests in dual carbon emission reduction technology over single reduction technology, it increases the emission reduction level and hence the environmental performance and also the demand and hence economic profits of the both the supply chain members. If the deterioration reduction technology spills over from the manufacturer to retailer, it increases the profit of the manufacturer but the retailer will be beneficial when his/her marginal profit will be high. In addition, we have incorporated government subsidy on manufacturer's emission reduction investment and a cost-sharing contract on the promotional effort of the retailer in our work and then found that joint impacts of them on the supply chain system. We have shown that these two incentives provide the pareto improved solution for the supply chain system and take the supply chain members to a win-win situation as economically and environmentally. The discussions of the results of this study can be beneficial for the industries which produced deteriorating products and emits high carbon during the production process in terms of taking optimal decisions. It also gives a lesson to the government how to inspired the practitioners towards developing a sustainable system.