Product pricing, green effort decisions and coordination in a dynamic three-echelon green supply chain

Abstract

The paper focuses on a three-echelon supply chain consisting of a green supplier, a green manufacturer and a retailer. Considering the dynamic changes in product greenness, differential games are employed to investigate product prices, green efforts and coordination in the system. By comparing equilibrium results in various scenarios, it is found that supply chain decisionmakers invest more in green efforts to maximize their profits under centralized decision, while they select pricing tools under decentralized decision. Importantly, when a local alliance composed of the supplier and manufacturer supplies products to the retailer at a flexible and dynamic wholesale price, the two-part tariff contract can fully coordinate the three-echelon green supply chain. The Rubinstein bargaining model is then used to optimize the profit allocation within the alliance. Additionally, the impact of green effort efficiency on decision-making is explored, revealing that green efforts depend on the efficiency of green efforts, while product pricing has nothing to do with the efficiency of efforts. The paper also points out that decentralization increases the probability of the supplier engaging in more green efforts than the manufacturer.