The Implications of the Spillover Effect Related to Green Co-Creation in a Supply Chain

Abstract

Driven by environmental concerns, firms close to end-users are increasingly co-creating with customers for green product development within their supply chains. However, a challenge called “spillover” can hinder the incentive for green co-creation by these firms. This paper examines the spillover issue in a dual-channel structure, where downstream firms implement co-creation with customers for green product development. Our findings indicate that spillover from green investments can negatively impact the investing firm’s profits. However, in low-competition scenarios, spillover benefits the supplier and customers within the supply chain. Additionally, under specific circumstances, it can improve overall supply chain performance. Crucially, to safeguard the sustainability of green co-creation in supply chains and prevent detrimental co-destruction, we propose implementing revenue-sharing contracts that can generate Pareto improvements, benefiting all green supply chain members. As a result, unlike traditional intellectual property protection, which hinders spillover, this study offers an alternative strategy that is also somewhat complementary, promoting collaboration over restrictions to leverage the positive aspects of spillover.