Two-part Tariff Research Articles

Retailer-driven carbon emission reduction: contract design in the presence of information asymmetry and cap-and-trade.

This study considers a supply chain consisting of a dominant brand-name retailer and a manufacturer in the presence of a cap-and-trade mechanism and consumers’ low-carbon preference. The retailer exerts advertising efforts, while lacks of the manufacturer’s private carbon emission reduction effort cost information. We construct the benchmark model with information symmetry and asymmetry respectively. We obtain all members’ equilibrium solutions and analytically examine the impact of the manufacturer’s carbon emission reduction effort cost, the retailer’s advertising effort cost, and consumers’ low-carbon preference on the supply chain members’ decisions. And then, we systematically compare two scenarios to obtain the condition in which the manufacturer would be willing to share the private information. With the aim of improving the manufacturer’s carbon emission reduction effort level and all members’ economic performance, we further propose a two-part tariff contract for information symmetry and asymmetry, respectively.

Carbon emission reduction cooperation of three-echelon supply chain under consumer environmental awareness and cap-and-trade regulation.

Considering that both the manufacturer's production process and the transporter's freight process produce carbon emissions, this paper constructed a three-echelon supply chain composed of a manufacturer, a transporter, and a retailer. This article studies the cooperative carbon emission reduction among the supply chain members under the carbon cap-and-trade policy and consumer environmental awareness. We used the Stackelberg game to explore four scenarios as follows: (1) in the non-cooperative decision model, no cooperation takes place among all supply chain members; (2) in the local cooperation decision of the manufacturer and the transporter alliance model, the manufacturer and the transporter work together to make decisions reducing carbon emissions, but each member of the supply chain makes its own pricing decisions; (3) in the local cooperation decision of the retailer-transporter alliance model, there is no cooperation except that the retailer and the transporter cooperate with each other to determine the selling price of the product; and (4) in the overall-cooperative decision model, there is complete cooperation among the members of the supply chain, who collectively decide on carbon emission reduction and the selling price of the product. Then, using the backward induction method, we derived and compared the equilibrium solutions and the profits of the supply chain system. The results showed that the scenario of complete cooperation among all supply chain members had the best performance in carbon emission reduction, market equilibrium quantity, and the supply chain system's profit, but the selling price of the product was likely to be higher than other scenarios. Two contracts have been proposed to coordinate the supply chain system. The cost-sharing contract is effective but imperfect under limited constraints. The two-part tariff contract can realize perfect coordination of the supply chain. Finally, we obtained several interesting conclusions from the numerical example and provide managerial insights and policy implications from the analytical results.

Information Disclosure Decision for Tourism O2O Supply Chain Based on Blockchain Technology

(1) Background: With the development of blockchain technology and fierce competition between tourism platforms, tourism platforms can adopt blockchain technology to disclose product information to enhance their core competitiveness. As for a tourism O2O, i.e., online to offline, supply chain, the tourism platform sells the product online, and the tour operator provides services offline. (2) Methods: We establish a game theory model and study the optimal strategies of supply chain members in two scenarios (decentralized and centralized) when the online platform does not adopt or adopts blockchain technology. Then, we introduce a two-part tariff contract for coordination. Furthermore, we discuss the impact of the cost of adopting blockchain technology, disclosing information and the proportion of information-sensitive consumers on the optimal strategies. (3) Conclusions: When the costs of adopting blockchain technology and information disclosure are low, if the proportion of information-sensitive consumers is large, adopting blockchain technology is beneficial to supply chain members. Compared with a wholesale price contract, a two-part tariff contract can encourage the platform to improve information disclosure quality, so the tour operator can adjust their cooperation contract to achieve Pareto improvements. Under a two-part tariff contract, the tourism platforms are more likely to disclose information and can effectively regulate the operational performance of the tourism O2O supply chain.

Double Markups, Information, and Vertical Mergers

In vertical contracting models with complete information and linear prices, double markups that arise between independent firms provide an efficiency rationale for vertical mergers since these eliminate double markups (EDM). However, the double markups vanish even without vertical integration if the firms are allowed to use two-part tariffs. Hence, the efficiency rationale for vertical mergers in models of complete information requires restrictions on the contracts that firms can use. In a sense, with complete information, two-part tariffs are simply too powerful. If instead one allows incomplete information and removes the restriction on contract forms, then vertical mergers continue to have an effect that is analogous to EDM, but they also have the potential to affect the overall efficiency of the market to the detriment of society. Consequently, the social surplus effects of vertical integration depend on the underlying market structure, and vertical mergers are, in and of themselves, neither good nor bad. We illustrate through an example that with incomplete information, the private benefits from vertical integration tend to be excessive; that is, vertical mergers remain profitable even when they are socially harmful.

Strategic role of charitable donation in supply chain coordination with consumer prosocial preference

Enterprises commonly make charitable donations to attract customers to purchase their products. We explore the supply chain coordination problem with charitable donation via a Stackelberg game, wherein the e-commerce platform is the leader and the manufacturer is the follower. The former sells the products and decides the commission, whereas the latter determines the charitable donation investment and price. We investigate the charitable donation and pricing strategies in a centralized and decentralized system, and obtain the following insights. (1) The donation and pricing strategies hinges on the proportion of prosocial customers and the donation cost coefficient. (2) Donation can increase the product price and the supply chain performance, unlike non-donation. (3) In the decentralized system with extremely profitable market conditions, charitable donation will aggravate the competition in the supply chain, which benefits the e-commerce platform but hurts the manufacturer. Nonetheless, under certain conditions, the coordination of supply chain can be automatically realized. (4) A simple two-part tariff contract can perfectly coordinate the supply chain.

BUYER POWER, EXCLUSIVE CONTRACTS, AND VERTICAL MERGERS IN COMPETING SUPPLY CHAINS: IMPLICATIONS FOR COMPETITION LAW AND POLICY

This paper studies how the buyer power of downstream firms can affect the market outcomes in both upstream manufacturing and downstream retail markets. In a two-tier oligopoly, where upstream firms are locked in a pair-wise exclusive relationship with their downstream retailers, we study the choice of firms between vertical merger and Nash Bargaining with twopart tariff regimes. On working with three cases of no vertical merger, single chain vertical merger and double chain vertical merger we find that joint profits of upstream and downstream firms are lowest when both channels choose vertical integration as compared to Nash Bargaining regime. We also find that Vertical integration is welfare enhancing because retail price will be minimum as upstream and downstream firms behave as a single entity. Hence for both single and double chain mergers, elimination of double marginalization is procompetitive. These results have implications for the enforcement of competition (antitrust) law.

Social desirability of entry in a bilateral oligopoly—The implications of (non) sunk costs

We show the implications of sunk investments for social efficiency of downstream-entry in a bilateral oligopoly. The possibility of socially excessive entry increases as the percentage of non-sunk investments increases. If there are no sunk investments or bargaining for the input prices occurs before investments as in the “ex-ante bargaining”, entry is always socially excessive. These results hold under both two-part tariff and linear input pricing.

The effects of individualized water rates on use and equity

Water pricing policies seek to balance cost recovery, conservation, equity, and affordability. Two-part tariffs are commonly deployed with the volumetric portion often using increasing block tiers. Setting a uniform-sized first tier too small can put more burden on lower income groups that may have less efficient homes and more people per household. Setting the tier too large will allow many people outdoor use at the lowest rate. This paper analyzes the effects of the growing trend to use average winter consumption (AWC) to create individualized rate structures tailored to revealed indoor use. I use nearly eight million monthly household bills from before and after the implementation of AWC pricing to explore two questions. First, do consumers respond to the implicit discount for winter use embedded in AWC pricing and reduce indoor conservation? Second, how does AWC alter equity in terms of varying average price both across and within water use levels? On average, winter use does not increase, but the trend in reductions is slowed after AWC is introduced and a small subset of consumers do appear to respond strategically. Furthermore, AWC results in a progressive structure whether holding water use constant or allowing it to vary.

Gaming strategies within a green supply chain considering consumers' concern about the greenness and conformance quality of products.

With the growing demand for green development, providing green and conformance quality improved products for sustainable growth and industrial upgrading is essential. However, the related literature rarely considers the improvement of product conformance quality in green supply chain management. This paper incorporates both into a framework for addressing the problem. We analyze the optimal strategies of a manufacturer responsible for conformance quality of product and greenness improvement and a retailer responsible for product marketing in a supply chain under four contracts: full cooperation, price-only contract, two-part tariff, and marketing cost-sharing. The results show that full cooperation and two-part tariffs lead to the same and highest product quality, greenness, overall profit, and social welfare, but full cooperation is difficult to achieve in the supply chain. For the profit-maximizing manufacturer and retailer, the manufacturer most prefers two-part tariff contracts, while the retailer prefers marketing cost-sharing because both achieve the highest profit in the preferred contract. In addition, under the price-only contract, the conformance quality of product and greenness is the lowest, and the profit levels for manufacturers and retailers are the lowest. In all four cases, increased environment and quality awareness contribute to improved product greenness and conformance quality, leading to higher profits for the manufacturer and retailer and higher social welfare.

Donating to a good cause: Optimal coordination design of a dyadic supply chain with socially aware consumers

Socially aware consumers care about giving to a good cause through their purchases. In reality, though, while some consumers respond favourably to companies' social responsibility initiatives, others apprehend because they do not trust the company or the effectiveness of the cause. That variability in consumers’ perceptions and purchase decisions inevitably adds to demand uncertainty. This paper studies the optimal design of a coordination mechanism for a socially responsible dyadic supply chain (SC) with a manufacturer supporting a cause-related marketing campaign (CMC) and a retailer selling to socially aware consumers. Unlike in pertinent literature, we take demand as uncertain due to consumers’ diverse and unpredictable responses to announced CMC. In a Stackelberg game setting, we determine the optimal donation size (a percentage of the selling price) for the manufacturer and the retailer’s optimal order size. We show that a two-part tariff (TPT) contract coordinates the SC. The numerical experiments demonstrate that the proposed TPT contract incentivizes the manufacturer to reach out to socially aware consumers by pledging to a charity. We also show that the proposed coordination model can achieve a Pareto-improving solution.

Coordination of Prefabricated Construction Supply Chain under Cap-and-Trade Policy Considering Consumer Environmental Awareness

The construction industry accounts for over one third of excessive CO2 volume, so it is essential that this amount be curbed. Prefabricated construction has superior strengths in terms of both the environment and economy, but low carbon is not one such strength. Meanwhile, the increasing number of consumers with environmental awareness makes it necessary to investigate consumer preferences and behaviors. Therefore, we firstly built a prefabricated construction supply chain consisting of a prefabricated company (leader) and a manufacturer, using the Stackelberg model. To regulate and mitigate carbon emissions, this study investigated the implementation of a cap-and-trade policy. Consumer environmental consciousness was considered from preferences on improving the prefabricated rate and carbon reduction. This study provides decision-making suggestions, not only from a pricing point of view but also for green production, i.e., the prefabricated rate and carbon reduction. We find that consumer environmental consciousness and the cap-and-trade policy improve decision making. To effectively limit the manufacturer’s emissions, we suggest governments set a cap below a certain threshold. However, under the policy, the prefabricated company has free-rider behaviors and gains greater profits as the leader, which results in an unfair profit distribution. Hence, for the sake of optimizing the supply chain’s profits, the cost-sharing contract and the two-part tariff were discussed. Both contracts achieved Pareto improvement, while the two-part tariff contract realizes coordination and reaches the desired level under a centralized system. Numerical analysis also verified the theoretical feasibility.

Two-Part Tariff of Pumped Storage Power Plants for Wind Power Accommodation

Pumped storage power plants face many challenges in competing in the electricity market, and high pumping costs lead to high prices for their power generation, which is one of the important factors that has limited their development. To address this problem, this paper studies the pumped storage two-part tariff mechanism considering wind power accommodation and uses the peak-valley price difference of wind power to realize the rationality and economy of a pumped storage charging and discharging strategy. It can improve the competitiveness of pumped storage power plants participating in electricity market transactions. Then, by considering the economic advantages of “pumped storage + clean energy”, a pumped storage and wind power joint optimal dispatching model was established based on the original pumped storage pricing method. This model takes the total system cost reduction after the introduction of pumped storage as the objective function to derive a reasonable pumped storage strategy. After which, the two-part tariff for pumped storage power plants was formulated based on the principle of reasonable revenue. Finally, a sensitivity analysis of various relevant parameters of the power plant was conducted through case studies to verify the effectiveness of the two-part tariff mechanism of pumped storage. It was found that the electricity tariff is lowest when the ratio of plant capacity to upper reservoir capacity is 1:6.37 (MW/million m3).

Charging more for priority via two-part tariff for accumulating priorities

We consider an unobservable M/G/1 queue with accumulating priorities and strategic customers who pay for priority accumulation rates. We show that when affine pricing is introduced, multiple equilibria may exist. This is in contrast to the standard linear pricing case where the equilibrium strategy is unique. Furthermore, a revenue-maximizing operator may generate more revenue under the optimal affine pricing than under linear pricing. In particular, we show that if the utilization level is not too high, no other combination of a priority scheme and pricing generates more revenue than the optimal affine pricing of accumulating priorities.

The Electric Gini: Income Redistribution through Energy Prices

In theory, regulators concerned about inequality will deviate from efficient two-part tariffs, charging lower-than-efficient fixed monthly fees and higher-than-efficient per-kilowatt-hour prices. To quantify that relationship, we develop a measure of the redistributive extent of utility tariffs: the “electric Gini.” Utilities with higher electric Ginis shift more costs from households using relatively little electricity to households using more. In practice, US utilities whose ratepayers have more unequal incomes have higher electric Ginis. But electricity demand is only loosely correlated with income, which means that electricity prices are an indirect and ineffective policy for countering income inequality. (JEL D31, L11, L94, L98)

Electricity Tariff Rebalancing in Emerging Countries: The Efficiency-equity Tradeoff and Its Impact on Photovoltaic Distributed Generation

Existing tariff schemes often fail to achieve basic economic objectives. They set prices per unit that either exceed or fall short the social marginal cost and produce unfair distributional outcomes. In many cases, electricity rates also contribute to unsustainable fiscal deficits due to the (almost) generalized electricity subsidies. Moreover, inefficient residential tariffs do not favor the adoption of green technologies and the investment in energy efficiency improvements. We argue that the efficient deployment of green technologies, and more generally, the clean energy transition, will require electricity tariff reforms. In this paper, we use household level data and hourly industry data from Mexico to show how more efficient pricing mechanisms (such as a two-part tariff scheme in the context of efficient nodal pricing), combined with well-design environmental regulations (e.g., net-metering schemes) and correctly targeted transfer programs (e.g., means testing mechanisms) can improve economic, social, and environmental outcomes significantly, all at once.

Low carbon strategy analysis with two competing supply chain considering carbon taxation

We investigate the carbon emission reduction efforts and pricing decisions for a two chains system under carbon taxation. In this system, each chain consists of a retailer, who acts as a follower and a manufacturer who acts as a leader. Moreover, we consider two situations: in the vertical orientation, two manufacturers individually make carbon reduction decisions; in the horizontal orientation, two manufacturers make carbon emission abatement decisions simultaneously. Besides, comparison of the optimal solutions are discussed under two situations, the results indicate that: (1) the government can encourage manufacturers to optimize the abatement rate of their products by imposing appropriate carbon taxes under two situations. (2) As long as carbon taxation occurs, each supply chain members’ vertical collaboration will drop carbonemission rate and product price. (3) When each chain is a decentralized system, although the horizontal collaboration between manufacturers improves the abatement rate of products, it reduces both retailers’ profits and customers’ interests. (4) The two-part tariff contract proposed by the downstream retailers can induce the two manufacturers to abandon their collaboration. This contract can not only realize Pareto improvement for supply chain members, but also protect the environment because of the larger abatement rate. (5) When the fixed fee falls into a certain range, the two-part tariff contract can yield a larger system benefit.

Green pharmaceutical supply chain coordination considering green investment, green logistics, and government intervention.

Despite their important role in the fight against global climate change, the coordination of green pharmaceutical supply chains (GPSC) has rarely been studied. To fill this research gap and realize the optimal green performance of GPSC, this study aimed to investigate the coordination of a GPSC considering green investment, green logistics, and government intervention. Using a game-theoretic approach, we establish decision models and analyze the equilibrium strategies in several GPSC scenarios. A linked two-part tariff (LTPT) contract is proposed for the coordination of the GPSC. In addition, we explore the many important implications of changes in the parameters. This research shows that, under different conditions, governments should reasonably implement different interventions in order to promote the positive global performance of GPSC. Government intervention can increase the benchmark height and make more room for green improvement. The proposed LTPT contract can assist in the realization of GPSC coordination, obtain a greater consumer surplus, and achieve optimal green performance. Higher flexibility-influence coefficients of green degree on costs are conducive to the emission reductions and sustainable development of GPSC. Moreover, cultivating green preference in the market can save the government expenditures on subsidies. When the green investment coefficient of a GPSC is larger, the GPSC members lack motivation for green improvement, and the government needs to provide more subsidies rather than taxes in order to improve the green degree of the GPSC. Increased rewards from the government to the pharmaceutical manufacturer and the TPLSP will reduce the subsidies for the pharmaceutical retailer. Government intervention influences the scope of an LTPT contract. The findings provide rich managerial insights and implications for the GPSC policymakers and decision-makers in achieving sustainability goals.

Optimal configuration strategy of hybrid energy storage system on industrial load side based on frequency division algorithm

Electricity bills typically account for a large proportion of industrial users' production costs. Hybrid energy storage system (HESS), a high-performance energy storage method, has been widely used on the demand side. In the context of a two-part tariff system, the optimal configuration of battery-ultracapacitor HESS on the industrial load side realizes demand management and cost saving. Complete decoupling of load data promotes the full play to the advantages of batteries and ultracapacitors. Therefore, a VMD-ST-QF load frequency division strategy is proposed to decompose the chronological load curve into high-frequency and low-frequency components precisely. Depending on the results of frequency division, an optimal configuration strategy of HESS is established to minimize the net investment cost of energy storage. In this paper, the economic benefits of assembling energy storage on the industrial load side with four different configuration strategies are compared. The case study shows that the introduction of HESS based on the VMD-ST-QF strategy saves industrial users 5.26% of their total electricity cost and shortens the payback period of energy storage investment.

The role of contract structure for damage quantification: pitfalls and solutions

ABSTRACT Damage quantification in antitrust cases typically revolves around overcharge and pass-on estimation. In vertical industry structures, both measures crucially depend on contract structure, with linear and two-part tariffs being the most common contract types. While most of the damages literature focuses on linear contracts, two-part tariffs are mostly neglected. We discuss implications of tariff structure for damage quantification, highlight common pitfalls and propose practical solutions in damage assessment when two-part tariffs are present.

Incentive Mechanisms for Carbon Emission Abatement Considering Consumers' Low-Carbon Awareness under Cap-and-Trade Regulation.

In the era of sustainable development, reducing carbon emissions and achieving carbon neutrality are gradually becoming a consensus for our society. This study explores firms’ incentive mechanisms for carbon emission abatement in a two-echelon supply chain under cap-and-trade regulation, where consumers exhibit low-carbon awareness. To boost the manufacturer’s motivation for abatement, the retailer can provide four incentive strategies, i.e., price-only (PO), cost-sharing (CS), revenue-sharing (RS), and both (cost and revenue) sharing (BS). The equilibrium decisions under the four incentive strategies are obtained by establishing and solving game models. A two-part tariff contract is also proposed to coordinate the low-carbon supply chain. Finally, through comparisons and analyses, we find that: (1) Consumers’ high low-carbon awareness can boost the manufacturer’s incentive for carbon emission abatement (CEA), thus increasing supply chain members’ profits. (2) It is more effective for the retailer to share its revenue to incentivize the manufacturer for abatement than to bear the investment cost of CEA. Thus, Strategy RS is better than Strategy CS and equivalent to Strategy BS. (3) The manufacturer and retailer have consistent incentive strategy preference under cap-and-trade regulation. Both firms prefer the incentive strategy with a higher cooperation level. (4) The incentive strategy with a higher cooperation level can also bring higher eco-social welfare under certain conditions.