Optimal pricing policy in a three-layer dual-channel supply chain under government subsidy in green manufacturing

Abstract

As global governments pay more attention to environmental issues, the idea of environmental protection has now been incorporated into the supply chain, and green supply chain management has become particularly significant. As such, this paper proposes a three-layer green supply chain model with a dual-channel structure consisting of a supplier, a manufacturer, and a retailer. The manufacturer sells the product through a (a) traditional retail-channel or (b) direct online-channel. The manufacturer sets a green product standard, while the government offers a subsidy to the manufacturer for green investment. We analyze the optimal decision under government subsidy and no government subsidy to maintain the profit maximization criteria of the supply chain. In addition, both the centralized and decentralized marketing strategies are evaluated using the Stackelberg game approach. To achieve the best pricing decisions for supply chain members, we compare the optimal pricing under consistent and inconsistent sales prices in both online and offline channels. The prime objective of the paper is to explore and compare the optimal pricing strategy with and without government subsidy pertaining to maximizing the overall profit of the supply chain. The numerical illustration and sensitivity analysis indicate that government subsidy can reduce the cost of green items and is beneficial to both manufacturer and supplier. Our research findings can lead to better decisions with and without government subsidy for members of the dual-channel green supply chain as well as enhance green product market competitiveness.