The green supply chains’ ordering and pricing competition under carbon emissions regulations of the government

Abstract

As policymakers and governments in recent years have imposed various policies on industrial sectors to combat climate change, firms are required to manage their carbon footprints throughout their supply chains, alongside other operational decisions. This paper studies pricing and ordering competition between two green supply chains while considering carbon emissions regulations. In this context, the paper proposes a Stackelberg game among a governmental agency and two competitive green supply chains. The government seeks to maximise social welfare by imposing carbon policies, including carbon cap, carbon tax, and cap-and-trade. Each supply chain contains a manufacturer and multiple retailers. There is a Bertrand Nash competition between supply chains in different markets. The vendor-managed inventory (VMI) mechanism has been deployed to coordinate the supply chain and boost profitability. This paper develops mathematical models based on the supply chains’ structures and carbon policies. It provides a series of insights that highlight the impact of carbon regulations on price, ordering size, transportation cycle, carbon emissions, and social welfare.