Comparison of competing supply chains with different structures under cap-and-trade regulation

Abstract

To reduce carbon emissions, many countries and regions have implemented carbon cap-and-trade regulation. The main objective of this paper is to explore the economic and environmental impacts of carbon cap-and-trade regulation on two competing supply chains. This paper considers two cases: (i) in the absence of cap-and-trade regulation and (ii) with carbon cap-and-trade regulation. For each case, there are three structures: centralized-centralized (C-C) structure, decentral-ized-decentralized (D-D) structure, and hybrid centralized-decentralized (C-D) structure. First, this paper analyzes the optimal pricing decisions of two competing supply chains for the two cases, and then explore the impacts of cap-and-trade regulation on the sale price, market demand, economy (include enterprise profits and consumer surplus), environment (i.e., carbon emission) and total social welfare. Finally, numerical examples are provided to illustrate the theoretical results. By comparing the two cases, the main conclusions are as follows: (i) cap-and-trade regulation leads to the increase of unit price and the decrease of the market demand, (ii) cap-and-trade regulation leads to the reduction of both carbon emission and the consumer surplus, (iii) the impacts of cap-and-trade regulation on the profit and social welfare depend on the carbon cap.