Equilibrium Decisions on Pricing and the Greenness Degree in Supply Chains under Single- and Cross-Distribution Channels of Green and Nongreen Products and Government Subsidies

Abstract

Rapid economic growth and industrialization have brought us material abundance and greater convenience, while also causing socio-environmental problems such as the rapid depletion of resources, unexpected natural disasters, and environmental destruction. For these reasons, environmental issues have attracted public and governmental attention around the world over the past few decades. As a result, environmental sustainability has become a critical indicator for evaluating the success and efficiency of supply chain management schemes. For a sustainable supply chain, many governments are employing subsidy policies to encourage consumers to purchase environment-friendly (green) products. This article considers a supply chain composed of two competing manufacturers and two retailers. The first manufacturer produces a green product, while the second manufacturer produces a nongreen product. Each of the two retailers can sell only a green product, only a nongreen product, or both green and nongreen products. In the market, consumers purchasing the first manufacturer’s green products can receive certain subsidies from the government. The amounts of the government subsidies that a consumer receives depend on the greenness degree of the product. Using a three-stage Stackelberg game framework, this article discusses equilibrium decisions on pricing and greenness for four different distribution channel structures. Major findings of this study reveal that (i) the government subsidy has a positive impact on the greenness degree and the demand for green products; (ii) the government subsidy level depends on the manufacturers’ distribution channel strategy types; and (iii) the greater the environmentally negative impact of a green product, the lower the level of the government subsidy paid for purchasing green products. Based on these findings, this article suggests that policymakers focus on establishing the policies that encourage the purchase of green products for the sustainability of a society and a supply chain.