Pricing decisions and social welfare in a supply chain with multiple competing retailers and carbon tax policy

Abstract

Abstract This paper investigates whether implementing carbon tax policy alters supply chain members' pricing decisions and social welfare. We also consider consumer environmental awareness (CEA), which is currently growing, and we focus on the impact of CEA, retail competitive intensity and other factors on the optimal carbon tax rate and social welfare. We address the issue from the point of view of a policy planner whose goal is to maximize social welfare. Additionally, we consider two different market scenarios: a bilateral monopoly situation and a scenario with multiple competing retailers. In terms of the impact on pricing, the retail price and wholesale price increase with the carbon tax rate in both scenarios. The market demand for the retailer that sells a more environmentally friendly product relative to other competing retailers will increase with the carbon tax rate in the scenario with competing retailers. Additionally, the government's carbon tax regulation at the optimal tax rate can effectively improve social welfare when carbon emissions per unit of product are large or the price of carbon dioxide is high in both scenarios, regardless of the extent of CEA. Further, when the competitive strength of an industry in the retail market is high, the government can also implement carbon tax regulation to reduce social welfare losses. Moreover, compared with the monopoly situation, the intuitive carbon tax rate is closer to the optimal carbon tax rate in the competitive situation, and thus, it will be better able to reduce social welfare losses.