Pricing Models for a Two-Period Manufacturing and Remanufacturing Process Under Carbon Cap and Trade Mechanism

Abstract

Under carbon cap and trade mechanism, collecting ratio and carbon cap seriously affect the decision of a manufacturer in a closed-loop supply chain. This paper constructs pricing models for manufacturing and remanufacturing products in the presence of carbon cap and trade mechanism, aiming to reveal the impact of the collecting ratio for the carbon emission. A manufacturer and a carbon-trade supplier are involved in a Stackelberg pricing game. First, a decision model without carbon trade is formulated. Judging conditions are shown for determining whether carbon cap and collection ratio are effective factors. The two-sided impact of the collection ratio over the carbon emission is demonstrated. In practice, the manufacturer sometimes produces and sells a large proportion of new products by pricing strategies when facing a low collection ratio. Second, a Stackelberg game is played between the manufacturer and the carbon-trade supplier. We demonstrate that the decision model without carbon trade and the game model with carbon trade compose a complete decision process for the manufacturer. Finally, numerical illustrations are designed to examine the sensitivity of the carbon emission with respect to the collection ratio and determine the decision area when both the collection ratio and the carbon cap change.