Pricing and carbon emission reduction decisions in supply chains with vertical and horizontal cooperation

• Published in: International journal of production economics 2017-09, Vol.191, p.286-297
• Main Authors: Yang, Lei, Zhang, Qin, Ji, Jingna
• Format: Article
• Language: English
• Subjects: Cap-and-trade; Consumer behavior; Game theory; Revenue sharing contract; Supply chain
• ISSN: 0925-5273; 1873-7579
• DOI: 10.1016/j.ijpe.2017.06.021

This paper considers two competitive supply chains under the cap-and-trade scheme, each of which consists of one manufacturer and one retailer. In the vertical direction, the manufacturer is the leader of Stackelberg game and the retailer is the follower; in the horizontal direction, there is a Nash game about the emission reduction decisions between manufacturers. This paper solves and compares the equilibrium solutions of supply chains with several different structures. The results show that the vertical cooperation leads to higher carbon emission reduction rate and lower retail prices. Compared with the case that both two chains are decentralized, manufacturers' horizontal cooperation will damage retailers' profit and consumers' welfare. It is found that the revenue sharing contract provided by the retailers can effectively promote manufacturers to give up horizontal cooperation, which not only helps the retailer and the manufacturer achieve a win-win situation but also benefits the environment with the higher emission reduction rate. When the sharing ratio is in a certain interval, the revenue sharing contract can bring a higher supply chain profit than the case that both two chains are integrated. •Two competitive supply chains under the cap-and-trade scheme are analyzed.•Vertical cooperation leads to higher greening level and lower retail prices.•Horizontal cooperation is detrimental for retailers and supply chains.•Revenue sharing contract is an effective way to avoid horizontal cooperation.