Optimal decision-making considering inter-supply-chain competition and negative-spillover from environmental effort

Abstract

Focusing on negative-spillover from environmental effort, this paper explores the issues of competition and optimal decision-making based on two competing two-stage manufacturer-dominated supply chains: centralized and decentralized. We developed the Stackelberg competition models according to four identified competition scenarios (pure centralized structure-CC, mixed structure-DC, mixed structure-CD, and pure decentralized structure-DD). By comparing the results of the four scenarios, we find that negative-spillover from environmental effort negatively impacts environmental-effort providers and reduces the optimal profit of the manufacturer providing the environmental effort, which in turn reduces the profit of the entire supply chain. The inter-supply-chain competition also produces a negative incentive for environmental-effort providers but provides a free riding effect on the non-provider, and this effect increases as competition increases. In terms of network externality, the structural change of a supply chain from centralized to decentralized is altruistic, which generates a double-marginalization (i.e., the network externality enhances competitor performance). Furthermore, the leader supply chain with a centralized structure is more willing to provide greater environmental effort, whereas when the leader supply chain structure remains unchanged, its environmental effort depends on the negative-spillover effect and the follower supply chain structure. Therefore, excessive supply chain competition should be avoided, and the negative-spillover effect of environmental effort should be reduced to motivate environmental-effort providers to increase their environmental efforts and promote the development of sustainable green supply chains. Future research should examine retailer-dominated supply chain competition and compare the results with the conclusions of this study.