Performance of Channel Members under Emission-Sensitive Demand for Green Supply Chain Management: A Game Theory Approach

Abstract

The skyrocketing growth of e-commerce and traditional retailing contributes to a large proportion of carbon emissions in any supply chain. Nevertheless, the literature related to carbon emission has focused on manufacturers and their potential for emission reduction. Therefore, it is imperative to understand the role of the retailing sector in reducing carbon emissions. Therefore, this study considers emission-sensitive demands which are faced by an r-store (brick and mortar retailer) and an e-store (online retailer) under different channel power structures. The competition between the channel members is modeled using game theory for the following channel structures, i.e., (i) r-store and e-store have commensurate channel power, (ii) r-store holds higher channel power, and (iii) e-store holds higher channel power. Equilibrium analysis was carried out to obtain the optimal pricing strategies and the r-store’s optimal profit and e-store. Further, the pricing strategies and resulting sales volumes were compared analytically and followed by a numerical validation. Three subcases were considered under numerical examples based on the parameter values with special reference to the base demand. It was found that competition between the r-store and the e-store having commensurate channel power will make them worse off. Therefore, the channel leadership is neither helping the r-store nor the e-store obtain more profit when the customer demand is emission sensitive.