Manufacturer competition and collusion in a two-echelon green supply chain

What is it about?

The literature on green supply chain (GSC) typically considers green quality (GQ) as the only quality of a green product. If there exists a trade-off in production of GQ and non-green quality (NGQ) of the product, then both the quality dimensions should be treated as separate decision variables. This paper addresses the GQ and NGQ choices of manufacturers, and price determination by the retailer, in a two-echelon supply chain consisting of a single retailer and many manufacturers, when there exists such a trade-off at GQ level above a threshold. Demand comes from two types of consumers – the ‘traditional’ and the ‘environmentally aware’. A centralized model having the objective of maximizing supply chain profit has been developed and has been compared to a Stackelberg game between the retailer and manufacturers. Cournot-Nash competition, as well as collusion among the manufacturers, have been analysed. This is the first paper to consider manufacturer collusion in a GSC in the presence of trade-off in production of GQ and NGQ. It was found that with only a few manufacturers, GQ is highest in the centralized model, but with a larger number of manufacturers competition among the manufacturers results in higher GQ. Degradation of GQ due to increased cross GQ sensitivity is prevented if manufacturer competition is ensured under Stackelberg game policy. Manufacturer collusion results in degradation of both GQ and NGQ. With an increase in the share of ‘environmentally aware’ consumers, GQ increases and NGQ deteriorates.

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Why is it important?

This study provides the following important managerial insights for large retailers that procure close substitutes from many manufacturers and intend to promote cleaner production. 1. The retail prices are lower, and manufacturer profits are larger under the centralized policy than under the Stackelberg game policy. Hence, the consumers spend less, and the manufacturers earn more in a coordinated supply chain. 2. The retailer's profit is larger under the Stackelberg game policy than under the centralized policy. Hence, in a retailer dominated supply chain, the retailer will adopt the Stackelberg game policy. 3. Collusion among the manufacturers reduces the retailer's profit. Hence, the retailer must prevent manufacturer collusion. 4. Collusion among the manufacturers reduces the optimal GQ and NGQ chosen by the manufacturers. Hence, In the interest of consumers and the environment, manufacturer collusion should be prevented, and competition among the manufacturers should be ensured. 5. Competition among the manufacturers not only increases the optimal GQ but also prevents the reduction of GQ due to increased cross GQ sensitivity of consumers. 6. If the number of manufacturers is small, the GQ is higher under the centralized policy. However, the GQ is higher under the Stackelberg game policy if there are a large number of manufacturers, and manufacturer collusion is prevented. Hence, the retailer should not only attempt to prevent manufacturer collusion but should also have a sufficiently large number of manufacturers in their supply chain. 7. Increasing the share of ‘environmentally aware’ consumers increases the optimal GQ. If ‘traditional’ consumers are made aware of the environmental impact of their consumption, then some of them will change their behaviour, and thus the share of ‘environmentally aware’ consumers can be increased.