Manufacturer encroachment with carbon cap-and-trade policy under asymmetric information

In order to mitigate carbon emissions and address environmental concerns, an increasing number of industries have started investing in green technologies to produce environmentally friendly products. This research develops a game theoretical model to examine the phenomenon of manufacturer encroachment in the context of carbon emission reduction and asymmetric information. Our analysis reveals that when the manufacturer does not encroach, a reduction in carbon emissions benefits all members of the supply chain. However, under encroachment, only the manufacturer stands to benefit from the reduction in carbon emissions. Moreover, with a low direct selling cost, we recommend that the manufacturer should aim to achieve a lower level of carbon emissions under encroachment compared to non-encroachment scenarios. Another key finding is that the benefits of encroachment for the manufacturer depend on the relative costs of direct selling and carbon emission reduction. Encroachment is advantageous to the manufacturer when either the direct selling cost or the carbon emission reduction cost is low. On the other hand, encroachment benefits the retailer only when both the direct selling cost and the carbon emission reduction cost are high. Furthermore, we demonstrate that it is in the retailer’s best interest to voluntarily share demand information with the manufacturer, particularly when the direct selling cost is either low or high. By sharing demand information, the retailer can enhance the overall performance of the supply chain. Overall, this study provides valuable insights for managers regarding encroachment and carbon emission decisions in the context of low carbon manufacturing, carbon cap-and-trade policies, and asymmetric information. These findings can guide decision-making processes and help optimize the performance of supply chains in environmentally conscious settings.