Low carbon strategy analysis under revenue-sharing and cost-sharing contracts

Abstract

This paper investigates the impact of revenue-sharing and cost-sharing contracts offered by a retailer on emission reduction efforts and firms' profitability. To encourage the manufacturer (he) to participate in the low-carbon supply chain, the retailer (she) offers some incentive schemes, such as cost-sharing contract (CS), revenue-sharing contract (RS), both two contracts (RC) or neither of them (NC). Under such incentive schemes, this work develops a basic model to examine channel members’ equilibrium decisions under a Stackelberg game approach. Extending from the basic model, this work further discusses the equilibrium solutions under Nash bargaining model, in which the retailer and the manufacturer bargain on a cost-sharing rate (CSB) or a revenue-sharing rate (RSB). Somewhat counterintuitively, the findings suggest the supply chain coordination and the range of sharing rate depend critically on parameters, such as the relative bargaining status (symmetric or asymmetric bargaining power) and consumer environmental awareness. For instance, Scenarios CS and RS can coordinate the supply chain, whereas Scenarios CSB and RSB do not work well. Further, the cost-sharing rate under Scenario CSB is not higher as that of previous studies, and Scenario RSB is nonexistence with asymmetric bargaining power.