Can cost sharing contracts coordinate green supply chains based on manufacturers' overconfidence

Abstract

Cost sharing contracts is one of the most common contracts to coordinate green supply chains. In this paper, we examine whether it can coordinate green supply chains in the set up of overconfidence. We assume that the manufacturer is overconfident and the retailer is rational. The manufacturer overestimates consumers' sensitivity to product greenness and accurately estimates the uncertainty of demand. The overconfident manufacturer and the rational retailer cooperate through cost sharing contracts. Then, we construct a game theoretical model to analyze the impact of manufacturers' overconfident on product greenness, pricing, profit and supply chain cooperation. At last, a numerical experimentation is presented. We find that, (1) the product greenness, wholesale price and retail price increase with the manufacturer's overconfidence as well as the retailer's cost sharing proportion. (2) no matter how much the cost sharing proportion is, the profit of manufacturers and retailers decreases with the manufacturer's overconfidence level. (3) cost sharing contracts can achieve the green supply chain coordination in rational setting. But under manufacturers' overconfidence, it cannot.