Cost-sharing contract in a closed-loop supply chain considering carbon abatement, quality improvement effort, and pricing strategy

¹ School of Industrial Engineering, College of Engineering, University of Tehran, Tehran, Iran
² Department of Industrial Engineering, Sharif University of Technology, Tehran, Iran
³ Department of Industrial Engineering, Islamic Azad University, South Tehran Branch, Tehran, Iran
⁴ Department of Operations Management & Strategy, State University of New York at Buffalo, Buffalo, NY, USA

^* Corresponding author: Niaki@Sharif.edu

Received: 10 March 2019
Accepted: 27 June 2020

Abstract

The high competition in today’s market persuaded companies to provide some attractive options for products to obtain more market shares. Therefore, in this research, three motivating elements are devised in the framework of a two-level supply chain consisting of a manufacturer and a distributor under stochastic demand, where green production via carbon abatement, quality enhancement efforts, and returning and remanufacturing policies are used. In line with reducing carbon emission two possibilities are applied in this paper involving the green technologies investment and the trade and cap policy. As simultaneous consideration of all motivating factors raises conflicts between the members in terms of undertaking the costs, a cooperative supply chain, as well as a cost-sharing (CS) contract in non-cooperative form, is devised to alleviate the conflicts and boost the performance of the supply chain. In order to find the optimal decision variables and profits in the CS contract, two game-theoretical approaches, namely Nash and Stackelberg, are applied. The results present the sufficiently of both the cooperative chain and the CS contact. In addition, the analysis of parameters in the CS contract in Stackelberg game indicates that when the distributor undertakes a part of the costs, positive impacts on the other motivating factors are observed. However, there is no interaction among the motivating factors in the Nash game.