Pricing decision of a two-echelon supply chain with one supplier and two retailers under a carbon cap regulation

This study considers a two-echelon make-to-order supply chain consisting of one supplier and two retailers under carbon cap regulation. We analyze the pricing decision process in a decentralized system from a game theoretical perspective and find the optimal pricing strategy for the wholesale prices of the supplier and the retail prices of two retailers. Our framework involves various operational strategies, including consistent and inconsistent wholesale prices for the supplier and consistent and inconsistent retail prices for the two retailers. We analyze and compare the performance of strategy combinations and find that the combination of a consistent wholesale price and an inconsistent retail price with a transfer payment mechanism is the best pricing decision to achieve Pareto improvement for supply chain members. We also provide the appropriate range of a carbon cap for the policy maker to effectively reduce carbon emissions. Finally, several numerical examples illustrate the impacts of a carbon cap on profits and carbon emissions in different pricing models. (C) 2017 Elsevier Ltd. All rights reserved.