Making Carbon-Emission Reduction Decisions in Supply Chains Based on Vertical Spillover and Environmental Awareness of Consumers

Abstract

As the environmental awareness of consumers continues to improve and vertical spillover between up-stream and down-stream enterprises is occurring more and more frequently, firms have to consider the two factors when reducing the emissions. To investigate the influence of vertical spillover and environmental awareness of consumers on the decision-making process and profits realized by the supply chain, a simple two-stage supply chain is established (consisting of one supplier and one manufacturer). Centralized and decentralized decision-making models are compared. In the case of centralized, we find that the manufacturer puts in a greater effort to reduce emissions compared to the supplier. With decentralized decision making, the emission-reduction efforts of both parties depend on the vertical spillover rates and environmental awareness levels of the consumers. As the vertical spillover rates and environmental awareness of consumers improve, the differences in emission-reduction effort and profits in the supply chain under the two decision-making models become larger. Furthermore, the coordination efficiency in the supply chain is lower. The problem of coordination in the supply chain is further investigated using a Nash bargaining model. We find that there is an optimal profit distribution ratio which enables the supply chain to be coordinated.