Pricing and green quality decisions in two-stage green supply chain for substitutable green products: a game-theoretic approach

Abstract

Growing businesses are concerned with doing well both environmentally and economically. Pointing out this view, this paper explores the game theoretical approach (Stackelberg and Bertrand) for a two-echelon green supply chain where the duopolistic manufacturers produce two substitutable green products and sell their products through a common retailer. The demands for both green products are functions of the selling prices and green levels (GLs).  The effects of power structures on optimal price and green level decisions and associated equilibrium decisions are examined in three scenarios. Firstly, trilateral competition manufacturer-led Stackelberg (MS); secondly, retailer-led Stackelberg (RS); and thirdly, vertical collaboration, and compares the optimal decisions analytically. Our investigations show that, in addition to increasing the product's greening level, vertical collaboration creates a win-win situation for collaboration members, whereas the manufacturer outside the collaboration experiences a decline in profits. Additionally, we find that the overall profit from vertical collaboration is greater than the sum of the individual profits corresponding to two participants in the trilateral competition models (MS and RS). Further, a selection criterion is developed for retailer to select the most suitable manufacturer for vertical collaboration. Finally, a numerical example and a sensitivity analysis are performed to determine the impact of parameters.