Manufacturers' emission-reduction investments in competing supply chains with Prisoner's Dilemma: The economic and environmental impacts of Retailer(s) capital Constraint(s)

Abstract

We establish a game model in the setting of competing supply chains, where either supply chain contains a manufacturer (leader) and a potentially capital-constrained retailer (follower). Our work endeavors to pursue an economic-environmental coexistence of manufacturers’ equilibrium emission-reduction investment strategies, and considers a realistic issue of retailer(s) capital constraint(s) leading to three scenarios: no retailers/only one retailer/both retailers financing (trade credit/bank credit). To comprehensively discuss the environmental performance of manufacturers’ investments, the unit-emission index (UEI) and total-emission index (TEI) are introduced together. We find that manufacturers’ investment strategies mainly depend on the product's original carbon emission, and retailers’ financing decisions rely on the carbon tax rate. From the economic perspective, compared with retailers having no capital constraints, retailer(s) having capital constraint(s) can promote the emission-reduction investments of both manufacturers. From the environmental perspective, investments can inevitably reduce emissions if UEI is implemented, whereas investments possibly increase emissions if TEI is implemented because terminal demand is enlarged by the green sensitivity of consumers. Surprisingly, there exists a “Prisoner's Dilemma” if both manufacturers employ investments at a particularly low carbon tax rate. Admittedly, despite both manufacturers resorting to abandoning investments can crack prisoner's dilemma, such a crack shrinks the economic-environmental coexistence of manufacturers’ investments, and hence manufacturers complying with prisoner's dilemma might result in “a fault on the right side.”