Product line design and quality differentiation for green and non-green products in a supply chain

Abstract

Motivated by the real practices in the circular economy, this paper aims to identify optimal product line design for green and non-green products in terms of quality differentiation. We develop a price and quality driven consumer choice model in a two-echelon supply chain through using a game-theoretical approach. Our study shows that no matter how high or low the product quality difference is, when the consumers' willingness to pay (WTP) for responsibility is relatively low, a single product line strategy will be prioritised over a two-product line strategy; whereas when the consumers' WTP for responsibility is relatively high, a two-product line strategy is more desirable. Moreover, we find that enhancing product quality could increase consumer welfare and reduce environmental impact. Only when green and non-green product quality difference is large enough, designing and selling green products is beneficial to consumers, brings the slightest pressure on the environment, and generates the highest social welfare. Furthermore, we extend the model by introducing a simplified contract and find that a simplified contract is not able to increase the manufacturer's profit, but may increase the retailer's profit and consumer surplus as well as generate better performance in environmental protection and social welfare.

The Impact of Consumer Subsidy on Green Technology Innovations for Vehicles and Environmental Impact

“…Yu et al [ 9 ] focus on a manufacturer’s decision on green product line design and the production quantity under the government subsidy policy. Shen et al [ 10 ] identify the optimal product line design for green and nongreen products in terms of quality differentiation. There are also many studies analyzing the impact of the government policies on manufacturer’s green production [ 11 , 12 , 13 , 14 , 15 ].…”

“…Besides the environmental impacts, a large number of studies also explore the impact of government policy on firms’ profit and social welfare [ 10 , 13 , 29 , 30 , 31 , 32 ]. Specifically, based on a product quality model, Gouda et al [ 29 ] analyze the impact of government composite regulations on environmental quality and profits of automakers.…”

“…We then define a metric for measuring total environmental benefits. As Shen et al [ 10 ] and Figliozzi [ 41 ] indicate, the carbon emissions released by a vehicle can be used to measure the environmental level of the vehicle. Generally, a vehicle releasing more carbon emissions is more harmful to the environment.…”

Game theory applications in production research in the sharing and circular economy era

“…the revenue sharing contract) outperforms the pure wholesale pricing contract for the society. Shen, Cao, and Xu (2019) examine the circular supply chain system with the paper entitled 'Product Line Design and Quality Differentiation for Green and Non-Green Products in a Supply Chain'. The authors observe that in the circular economy era, the market includes both the green product and non-green product.…”

“…the revenue sharing contract) outperforms the pure wholesale pricing contract for the society. Circular supply chain management Shen, Cao, and Xu (2019) (1) Green product development (2) Quality differentiation (3) Consumer choice model with WTP considerations (4) Supply chain contract (1) Irrespective of whether the product quality difference is high or low, the consumers' willingness to pay (WTP) for responsibility is critical. (2) If the WTP for responsibility is sufficiently low, the 'single product line strategy' outperforms the 'twoproduct line strategy'.…”