Pricing strategy for a green supply chain with hybrid production modes under government intervention

Abstract

Governments apply economic motivating forces and penalties to manage environmental effects of enterprises. Therefore, companies and manufactures will need to move toward environmental and sustainability assessment to survive and remain competitive in market.We consider market demands so that non-green and green products can be substituted with each other. If green products cannot overwhelm the market, manufacturers might select hybrid production mode including green and regular products. The government acts as a leader and sets special tariffs for non-green and green products as a controlling tool. We formulate a game theoretical model in twelve scenarios based on government policies and different types of production modes of a supply chain (SC). We calculate the optimal tariffs, selling prices, and prices of raw materials. The results indicate that environmental protection strategy of government has significant impact on the government revenue and profit of the SC’s members. Moreover, the profits of a centralized SC is higher than a decentralized SC. When the government chooses the environmental protection and revenue seeking policies, the profit functions of the government and members of SC increase in centralized scenarios under hybrid production mode. Besides, it can be seen that Hybrid production mode has positive role on participating enterprises. Results also show that when government focuses on increasing income, the environmental impacts of SCs will increase in both decentralized and centralized SCs.