Dynamic Carbon Reduction and Marketing Strategies with Consumers’ Environmental Awareness under Cap-and-Trade Regulation

Abstract

This paper targets a supply chain system consisting of a manufacturer and a retailer and studies the optimal dynamic carbon reduction, marketing, and coordination strategies under the cap-and-trade regulation with the presence of consumers’ environmental awareness. To this end, we first depict the dynamics of carbon emission in the supply chain and reveal the relationship between carbon accumulation and operational decisions. Then, we set up a differential game model under the cap-and-trade regulation and derive the optimal profits and decisions in decentralized, centralized, and cost-sharing scenarios, respectively. In the end, we also use the two-subsidy and revenue-sharing mechanism to coordinate the supply chain. After analyses and comparisons of the results, we can obtain some interesting results. The carbon trading price positively affects the manufacturer’s carbon reduction effort in all scenarios but exerts no influence on the retailer’s marketing effort in the decentralized and cost-sharing scenario. Only in the centralized scenario will the carbon trading price affect the retailer’s marketing decision and the retailer should decrease the marketing effort when the carbon trading price increases. Hence, the marketing effort in the centralized scenario may not always be the highest among these scenarios. We also find that full cooperation may not always help to reduce the carbon emission of the system, but the cost-sharing strategy is certain to reduce the carbon emission. Meanwhile, numerical analysis proves that when the revenue sharing rate is within a certain range, the two-subsidy and revenue-sharing mechanism will be able to perfectly coordinate the supply chain.