The effects of cap-and-trade regulation and sales effort on supply chain coordination

Abstract

Under cap-and-trade regulation, this paper firstly investigates the optimal production decisions and sales effort level with the cost-sharing and quantity-discount contracts. And we further explore the effects of the regulation and sales effort on supply chain coordination. We list some main conclusions here. First, with the two contracts, the manufacturer’s optimal profit firstly increases and then decreases as the cap increases. Both the manufacturer’s and retailer’s optimal profits are increasing in the marginal sales effort cost in some cases. Second, the two contracts partly coordinate the supply chain, and the quantity-discount contract is more flexible in coordinating the supply chain, which means that the condition of supply chain coordination through the quantity-discount contract is easier to meet. Third, for the two contracts, higher carbon trading price and stricter cap are beneficial to supply chain coordination, while the retailer’s sales effort damages supply chain coordination. Finally, we extend our model to consider production and retail competition to check the robustness of the coordination results.