The Impact of Cost Sharing on Green Technology Investment in Competing Supply Chains

Abstract

The investment in green technology in the process of product design and production is viewed as a powerful tool for sustainable development and carbon emission reduction. However, the substantial cost and pressure of competition weaken incentives for manufacturers to engage in green technology. In this paper, we consider two competitive manufacturer-retailer supply chains, where each manufacturer sells partially substitutable products through the exclusive retailer, study green technology investment selection by manufacturers, and examine the efficacy of retailer cost sharing scheme. Our analysis shows that a dominant equilibrium strategy for both manufacturers is to invest in green technologies, whether cost sharing is in place or not. Retailer sharing the cost of manufacturer green technology investment can avoid firms’ preference confliction over the green technology investment and improve social welfare simultaneously when both the cost-sharing rate and the degree of product/channel competition are relatively low. We also find that green technology investment by manufacturers does not necessarily curb total carbon emission, and the cost sharing can either strengthen or weaken the carbon emission reduction of green technology investment.