Pricing and greening decisions in a three-tier dual channel supply chain

Abstract

This paper addresses the problem of optimal and coordinated decision making for a three-tier dual-channel green supply chain (SC). In the investigated SC, the manufacturer produces a good with an arbitrarily green level and sells it to the distributor. The distributor has two choices: (1) selling product through a direct e-channel, or (2) selling product to a retailer. Demand in both e-channel and retail channel depends on price and green level of the product. The manufacturer, the distributor, and the retailer decide on the green level of product, the price in e-channel, and the retail price of the product, respectively. The problem is investigated in three different decision-making structures. At first, the open triad and the closed triad decision structures are analyzed and optimal decisions for all SC members are extracted. This study contributes to the literature by developing a coordinated, environmentally friendly decision model for a multi-tier dual-channel SC structure. According to the findings, compared to the open triad, the closed triad structure is profitable for the SC at the expense of one or more members, who will thus not adopt it. Secondly, a mathematical programming model, labeled as transitional model, is proposed to achieve coordination. The transitional triad guarantees the manufacturer's profit, while keeping customer prices lower and greenness higher than the open triad. The numerical studies and sensitivity analyses show that the proposed model not only is profitable for all SC members, but also increases green level of the product and reduces prices in both the e-channel and retail channel.