Pricing and carbon footprint in a two-echelon supply chain under cap-and-trade regulation

Abstract

This paper investigates the optimal decision of selling price and carbon footprint in two-echelon supply chain under cap-and-trade regulation, which consists of one-single manufacturer and one-single retailer. Comparing the decisions and profits in the centralized and decentralized scenarios, we try to propose a side-payment self-enforcing contract to coordinate the supply chain and achieve a Pareto improvement. The results show that the optimal selling price is negatively related to consumer's awareness and initial amount of carbon emission, whereas positively related to trading price of carbon cap. Meanwhile, the optimal carbon footprint is negatively correlation with the consumer's awareness, while has a positive correlation with initial carbon emission and trading price of carbon cap. Interestingly, the side-payment function does not always produce a positive relationship with consumer's awareness and initial amount of carbon emission.