Sustainable Decision-Making in a Low-Carbon Supply Chain: Fairness Preferences and Green Investment

Abstract

This study investigates optimal decisions in a low-carbon supply chain consisting of a manufacturer and a leading retailer considering the green investment and fairness preferences of member firms. Four Stackelberg game decision models are constructed, in which the manufacturer and the retailer engage in green investment separately when the manufacturer has and does not have fairness preferences. The impacts of fairness preferences and green investment on the optimal decision in the low-carbon supply chain are comparatively analysed. The results show that member firms engage in green investment regardless of the presence or absence of fairness preferences and that this behaviour increases the wholesale price, retail price, and market demand of low-carbon products as well as the profits of member firms and the supply chain. A more interesting finding is that the profit growth of member firms and the supply chain due to the manufacturer’s green manufacturing practices is more pronounced than that due to the retailer’s green marketing practices. When the retailer and the manufacturer engage in green investment, the manufacturer’s fairness preferences have different effects on the wholesale price, retail price, market demand, level of green marketing efforts, member enterprises and profits of the supply chain. Therefore, firms should consider the impact of green investment and fairness preferences when making pricing and performance decisions to achieve efficient operation of the whole supply chain and prevent double marginal effects. Finally, the above conclusions are verified through numerical simulation, providing a reference for the decision-making of member firms in a low-carbon supply chain.