Green subsidy Strategies and fairness concern in a Capital-Constrained supply chain

Abstract

This study investigates a decentralized capital-constrained green supply chain consisting of a capital-constrained manufacturer and a retailer, wherein the manufacturer is dependent on the retailer by funding his operations and invests in green technology development to manufacture green products. To enhance the degree of product greening, the retailer may launch a subsidy to incentivize the manufacturer. We specifically consider three widely adopted green subsidy strategies by the retailer, namely, price-increasing strategy (Strategy PI), interest-reducing strategy (Strategy IR), and cost-sharing strategy (Strategy CS). Our results reveal that the preferred strategy for the retailer and manufacturer is either Strategy CS or IR, while Strategy PI cannot be the dominant strategy. In specific, when the interest-reducing proportion is low, both the manufacturer and retailer prefer Strategy CS; otherwise, Strategy IR will be preferred by both the retailer and manufacturer. Our study further studies the scenario in which the retailer has a fairness concern. The results indicate that such a concern can weaken the manufacturer’s incentive to improve the degree of product greening and strengthen the retailer’s incentive to embrace Strategy CS. More interestingly, the fairness concern can enhance the performance of the entire supply chain under certain conditions. Specifically, when the level of fairness concern is low, fairness concern is detrimental to the entire supply chain. However, when the level of fairness concern is high, fairness concern is beneficial for the entire supply chain.