Decisions on Pricing, Sustainability Effort, and Carbon Cap under Wholesale Price and Cost-Sharing Contracts

Abstract

Rapid economic growth and industrialization have brought material abundance and convenience, but also social and environmental problems such as global warming, climate change, and ozone depletion. For this reason, the public and governments have continued to make efforts to reduce carbon oxide emissions worldwide over the past few decades. To achieve this mission, cap-and-trade regulations have been introduced as one of the most effective market-based mechanisms to control carbon emissions. Accordingly, sustainability efforts, including the development of green products and innovating manufacturing technologies, are being made by companies in supply chains to reduce their carbon emissions. In the context of sustainability innovations and carbon emission constraints, this article investigates pricing decisions, the degree of sustainability efforts, and carbon caps under two different supply chain contracts—in this case, wholesale price contract and cost-sharing contract. This article establishes a Stackelberg game model under each of the supply chain contract types and presents the equilibrium decisions made by players of the game. Major findings of this article reveal that (i) the performance of the supply chain is considerably affected by the presence of a carbon cap; (ii) the higher the carbon cap set by a government is, the more sustainability innovation efforts the supply chain makes; and (iii) the supply chain can improve its profitability and its sustainability under a cost-sharing contract.

Strategic implications of carbon pricing on global environmental sustainability and economic development: A conceptual framework

“…This international cooperation on carbon pricing can lead to more rationalized market operations by creating a level playing field for businesses and reducing carbon leakage. Lee and Yoon (2022) investigate the impact of carbon caps and supply chain contracts on pricing decisions and sustainability efforts. Their findings suggest that cap-and-trade regulations, a form of carbon pricing, can significantly influence the profitability and sustainability of supply chains.…”

Sustainability and Resilience Analysis in Supply Chain Considering Pricing Policies and Government Economic Measures

“…) involve demanding durable products and undertaking sustainability actions and investments, such as sustainable product refurbishment, the requirement for sustainable packaging, recycling, and more [35]. At the supplier level, it includes contributing to the reduction of carbon footprint through the integration of CO 2 emissions cost ( ) during product transportation.…”

“…At the supplier level, it includes contributing to the reduction of carbon footprint through the integration of CO 2 emissions cost ( ) during product transportation. Additionally, at the government level, the social charge ( ) paid by the store contributes to fostering a more socially sustainable business environment [35] across the supply chain.…”

Robust Emission Reduction Strategies under Cap-and-Trade and Demand Uncertainty

“…Jian et al [38] investigated the impact of consumers' fairness concern on marketing efforts, greening level of the products, recycling rates, and pricing of a supply chain and demonstrated the effectiveness of profit-sharing contracts for Pareto improvement of the supply chain performance. Lee and Yoon [39] explored supply chain members' optimal price and sustainability efforts in the context of sustainability innovation and carbon emission constraints. They found that the higher the carbon cap set by the government, the greater the sustainability efforts the supply chain makes.…”