Investment and Financing Decisions for Fuel Consumption Reduction in a Vehicle Supply Chain

Abstract

This paper models the financing and fuel reduction investment decisions of a supply chain under chain and chain competition to analyze firms’ pricing, product, and investment and financing strategies. In two competing supply chains, one of them is willing to invest in fuel consumption reduction to meet its carbon social responsibility and pursue a competitive. It can choose between two financing models, manufacturer financing and retailer financing, to address the lack of investment capital. Consumers are inclined to purchase low-fuel consumption vehicles due to the cost of use and carbon concerns. Results show that under the model of manufacturer financing, the utility of both the manufacturer and the retailer improves. However, in this model, the fuel consumption reduction is lower than that under the model of retailer financing. If it takes the model of retailer financing, the manufacturer can achieve higher utility than under the model of manufacturer financing, but the retailer’s profits fall rather than increase. So the retailer would not take it unless the manufacturer and government compensate it.