Optimal Pricing and Greening Strategy in a Competitive Green Supply Chain: Impact of Government Subsidy and Tax Policy

Abstract

With the expanding awareness of worldwide governments to ecological issues, the idea of protecting the environment has been initiated into the supply chain. The role of government in green supply chain management has become especially significant. This paper proposes a green supply chain model with a duopoly structure, in which two manufacturers separately produce green and non-green items sold through a common retailer. The government looks for social advantages and decides subsidies for the green item and taxes for non-green items. Using a centralized and decentralized model, two cases of government interference and no government interference are analyzed with customer green preference. This study focuses on exploring the pricing strategy, greening strategy and comparing the optimal decisions in all the cases to maximize the overall profitability of the supply chain. Numerical results and sensitivity analysis illustrate how the government subsidy on green products and tax policy in non-green products can influence the profitability of supply chain members. The research finding can give valuable experiences to channel members of the supply chain to settle optimum choices with and without government interference by enhancing the green and non-green item market competition. Among the competitive duopoly structure, the centralized model makes more profit and leads to manufactured eco-friendly items.