Optimal green product’s pricing and level of sustainability in supply chains: effects of information and coordination

Abstract

Nowadays, in business operations achieving sustainable development goals is critically important. With the proper use of information, supply chain management can significantly help enhance sustainability. In this paper, we analytically study a supply chain model where a manufacturer produces a green product and sells it to the end consumers through a retailer. We formulate the analytical model as a Stackelberg game. In the game, the manufacturer is the Stackelberg leader who decides the wholesale price and product sustainability level, and the retailer is the follower who reacts by setting the retail price. After deriving the Stackelberg equilibrium of the wholesale price, the product sustainability level, and the retail price in the closed form expressions, we compare the manufacturer’s, the retailer’s, and the whole supply chain’s performances. We derive and compare the equilibria under three business scenarios, including Decentralized Supply Chain with Non-information Sharing (Scenario N), Decentralized Supply Chain with Information Sharing (Scenario I), and Centralized Supply Chain (Scenario C). We give managerial suggestions to the manufacturer and the retailer on how to promote the green products and achieve organizational sustainability goals. We also analytically illustrate how to coordinate the channel, and highlight the crucial role played by information in the green product supply chain.