Behavior Choice and Emission Reduction in a Dynamic Supply Chain with a Capital-Constrained Retailer

Abstract

This paper studies the dynamic optimization of a low-carbon supply chain consisting of a manufacturer and a capital-constrained retailer. Considering market randomness and accumulation of production experience, a Stackelberg differential game model is constructed. In the game, the manufacturer is the leader and its pricing and emission reduction strategies over time are deduced in farsighted and myopic behaviors, respectively. In both behaviors, the emission reduction increases over time and a relatively low/high carbon price leads to skimming/penetrating pricing strategy of the manufacturer. Numerical study shows that the manufacturer must adopt a farsighted behavior for profit seeking except that consumers’ low-carbon awareness is quite low, and the retailer also prefers the manufacturer to adopt this behavior. Increasing carbon price and consumers’ low-carbon awareness benefits the manufacturer rather than the retailer. The governments can take measures to raise the carbon price to reduce the environmental impact.