Research on low-carbon strategies in supply chain with environmental regulations based on differential game

Abstract

Abstract With increasing carbon emissions and relatively unfavorable climate changes, all circles of society, including consumers, governments and enterprises, are paying more attention to low-carbon production. In this study, we consider a two-echelon supply chain consisting of one manufacturer and one supplier that try to increase sustainable profits by making efforts on CO2 emission reduction in three progressive environment regulation situations using a Stackelberg differential game: (1) the market-based situation in which consumers' environmental awareness is mainly considered, (2) the government-based situation in which government intervention effect is mainly considered, and (3) the supply chain based situation in which the channel coordination effect is mainly considered. Dynamic expressions of the optimal sales price, emission reduction efforts and cost subsidy are derived from three situations with the goal of profit maximization. The results show that the emission reduction is largest with the highest efforts of the manufacturer and supplier in the supply chain based situation. The manufacturer makes increasing emission reduction efforts when consumers' environmental awareness, government intervention and channel coordination are introduced in sequence, and charges more money for low-carbon products according to the amount of emission reduction. The supplier makes more efforts only when channel coordination is introduced. Governmental regulation aimed at the final products and downstream enterprises cannot function effectively; a cost-sharing contract in the supply chain is needed to motivate the supplier to make greater emission reduction efforts. The simulations and sensitivity analyses are given to verify the effectiveness of the conclusions. Our study provides theoretical support for dynamic low-carbon production in the supply chain with environmental regulations from the market, government and operation.