Optimal Markup Pricing Strategies in a Green Supply Chain under Different Power Structures

Abstract

Fixed-dollar and flexible markups are two markup pricing strategies commonly adopted in the retail industry, but their impacts on green behaviors of enterprises remain unknown. This paper investigates how the two markup pricing strategies influence firms’ managerial behaviors in a green supply chain, considering three power structures: Manufacturer Stackelberg, Retailer Stackelberg, and Vertical Nash. We find that the retailer’s pricing strategy choice is jointly affected by power structures and consumer sensitivity to product green levels. Particularly under Manufacturer Stackelberg, the fixed-markup strategy makes the retailer earn a higher profit. However, under Vertical Nash, the retailer’s pricing strategy depends on consumer sensitivity to green levels. When consumers are less sensitive to green levels, a flexible-dollar markup strategy is more profitable for the retailer; otherwise, the fixed-markup strategy is better. Additionally, for the manufacturer, the green levels of the product and the firm profit are always higher when the retailer adopts a fixed-dollar markup strategy under Manufacturer Stackelberg and Vertical Nash. Interestingly, if the retailer adopts a flexible-dollar markup strategy, the manufacturer has the “late-mover advantage” only when consumer sensitivity to the green level is high. Furthermore, the supply chain achieves the highest profit when the manufacturer acts as the leader under the fixed markup strategy.