Manufacturer encroachment and carbon reduction decisions considering cap-and-trade policy and retailer investment

Abstract

Low-carbon regulation and market competition present new opportunities and challenges for supply chain firms, emphasizing the significance of carbon reduction and channel encroachment in enhancing competitiveness. This study formulates various game models to evaluate manufacturers’ encroachment strategies (with or without encroachment) under different conditions of low-carbon investment by retailers. It investigates the operational decisions and carbon abatement strategies of firms under various scenarios. The findings reveal that encroachment elevates unit abatement levels but decreases wholesale prices and retailer profits when unit encroachment costs are below certain thresholds. In contrast, the manufacturer consistently benefits from channel encroachment. Retailer-initiated low-carbon investments can motivate manufacturers to reduce emissions. A lower carbon price potentially offers financial advantages to retailer engaging in such investments. Additionally, the likelihood of reduced environmental damage postchannel encroachment, compared to preprofessional encroachment, increases when the retailer invests in low-carbon initiatives. The retailer’s profit is inversely related to the carbon price, and a higher carbon price can strengthen the incentive effect of low-carbon investment on the manufacturer’s abatement endeavors.

Graphical abstract

Keywords

carbon cap-and-trade / channel encroachment / emission reduction / low-carbon investment

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