The coordination strategy for two-tier supply chains with a cost-sharing contract in the cap-and-trade mechanism

Bangdong Zhi, Junlin Chen, Xiaohong Liu

Research output: Contribution to journalArticle (Academic Journal)peer-review


With increasing awareness of the environment, how to reduce carbon emissions and improve business performance has become a new concern in the field of supply chain management. To respond to this recognition, the objective of this paper is to address the issue as to how supply chain members coordinate the production, order and emission reduction strategy in the cap-and-trade mechanism, and that improve supply chain performance by means of cost-sharing contracts. In order to solve the problem, a two-tier supply chain with a manufacturer and a supplier is considered. An EOQ model is used to analyze decision making between supply chain members. Differing from previous studies which consider a single factor only, two factors, production and transportation, are taken into account. From this starting point, a Stackelberg game model is built up to investigate the optimal carbon reduction strategy and cost-sharing contracts. The research results indicate that supply chain members can coordinate against a cost-sharing contract inclusive of carbon emission reduction. Joint decision making can help to reduce carbon emission and improve supply chain performance. According to the study, the application of cost-sharing contracts is subject to the emission reduction technology of suppliers and the carbon attribute of products. The suppliers equipped with high quality technology for carbon emission reduction and low-carbon products would have more choice for cost-sharing contracts. The research is not only conducive to supply chain members making decisions to reduce carbon emissions, but also instrumental to the government for making policies pertaining to carbon emission reduction in the cap-and-trade mechanism.
Original languageChinese
Pages (from-to)48-56
Number of pages10
JournalChinese Journal of Management Science
Issue number7
Publication statusPublished - Jul 2017

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