Abstract
The implementation of cap-and-trade regulation worldwide is bound to have some effects on supply chain decision-making. This paper investigates optimal pricing and product carbon footprint decisions of the supply chain consisting of a manufacturer and a retailer under cap-and-trade regulation by applying optimization and game theory. By comparing the optimal results between the centralized and decentralized decision-making models, we find that the optimal product carbon footprint and selling price not only depend on the carbon trading price and carbon cap allocated by the government, but also relate to the initial carbon footprint of the product and the decision-making methods in the supply chain. It is found that there is also a “double marginalization” in the decentralized situation, thus we coordinate the supply chain using a two-part tariff contract. Specifically, only the manufacturer adjusts dynamically the wholesale price and fixed fee within the coordinating contract according to different initial carbon footprint and the range of the carbon cap reduction by the government. Finally, we obtain several interesting conclusions from the numerical examples and provide managerial insights and policy implications from the analytical results.
Highlights
With the rapid development of industrial economy, some firms based on fossil energy create wealth for humans while releasing large amounts of carbon emissions that cause serious environmental problems, such as global warming and climate change, which become increasingly obvious as extreme weather becomes more frequent and the greenhouse effect is increasing
It is worth mentioning that the National Development and Reform Commission (NDRC) of China has chosen Beijing, Shanghai, Tianjin, Chongqing, Guangdong, Hubei and Shenzhen to carry out regional pilot work on carbon emissions trading, and to explore the correct path to establish a national cap-and-trade mechanism in the country in the near future [5,6]
Corollary 2 shows that, under the centralized decision-making, if the initial carbon footprint of the product is relatively large, the selling price of the product will increase with increasing carbon trading price; only if the initial carbon footprint of the product is relatively small, and the carbon trading price is in a certain range, the selling price will decrease with increasing carbon trading price
Summary
With the rapid development of industrial economy, some firms based on fossil energy create wealth for humans while releasing large amounts of carbon emissions that cause serious environmental problems, such as global warming and climate change, which become increasingly obvious as extreme weather becomes more frequent and the greenhouse effect is increasing. (4) For the government, what policies and measures are implemented to encourage the manufacturer to invest in low-carbon technology under cap-and-trade regulation, and to reduce the product carbon footprint more effectively. To answer these questions, a game theory approach is used for modeling and solving the problem. A game theory approach is used for modeling and solving the problem With this approach, we can find the optimal product carbon footprint and selling price, solve the problems of the manufacturer and retailer’ decisions, increase the controllability, and improve the operation efficiency for the supply chain.
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