Supply chain’s green investment strategy to cope with an entrant threat considering differentiated competitiveness

Abstract

Facing the strengthening of consumer environmental awareness, we investigate the green investment and green subsidy problem of an incumbent supply chain (ISC) taking into account whether the external manufacturer (EM) encroach. Green investment strategies are explored under three scenarios: no-green investment, ex-ante and ex-post green subsidies by the incumbent manufacturer (IM), and green investment by the supplier. The results show that market size does not influence supplier channel selection and investment decisions. The green investment strategy is significantly affected by investment cost efficiency. Meanwhile, contrary to expectation, the more the investment is, the more willing the incumbent supply chain is to invest. Moreover, under a single-channel format, the incumbent supply chain can’t always achieve Pareto equilibrium. However, in the presence of the supplier green investment, although each green investment scenario can improve the profit, it cannot realize Pareto equilibrium. In addition, when the dual-channel format is adopted, the local areas can achieve Pareto equilibrium under different scenarios. The supplier plays an important role as it holds a monopoly upstream in the supply chain. As a result, the supplier’s green investment generates excellent profit and consumer surplus; however, there will be fluctuations in the optimal strategy of the incumbent manufacturer.