Accounting for consumers’ environmental concern in supply chain contracts

Fanjun Yao, Elena Parilina, Georges Zaccour, Hongwei Gao

Research output: Contribution to journalArticlepeer-review

Abstract

Consumers are increasingly concerned about pollution and are, at least in part, making their purchases accordingly. In this paper, we consider a supply chain where demand depends on the manufacturer's environmental reputation, an asset that can only be built over time. We assume that this reputation depends on information emanating from the manufacturer itself about its environmental actions and on its objective environmental record when compared to an industry standard. In this paper, we look at the impact of consumers’ environmental concern on the strategies and outcomes of a supply chain. As the retailer has a direct influence on sales through its pricing policy, it seem more realistic to take a supply chain perspective instead of a single-firm one. Therefore, the contractual arrangement in the supply chain becomes a relevant issue. We model the supply chain as a two-player dynamic game and characterize and compare the equilibrium strategies and outcomes under wholesale-price and revenue-sharing contracts. We analyze the impact of the sharing parameter, the industry pollution standard and consumers’ degree of environmental sensitivity on the results, and in particular, on the region in the parameter space where a revenue-sharing contract is Pareto improving with respect to a wholesale-price contract. Also, we examine whether it is in the best interest of the retailer to behave myopically when setting its price.

Original languageEnglish
JournalEuropean Journal of Operational Research
DOIs
StateE-pub ahead of print - 25 Nov 2021

Scopus subject areas

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

Keywords

  • Environmental green reputation
  • Myopic retailer
  • Revenue-sharing contract
  • Supply chain management
  • Wholesale-price contract

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