The role of revenue sharing and first-mover advantage in emission abatement with carbon tax and consumer environmental awareness

In this study, we explore the role of revenue sharing and first-mover advantage in manufacturer's carbon emission abatement effort and the firms' profitability in a linear demand setting, where the government might impose some carbon emission charges and consumers may have environmental awareness. We consider a supply chain system, consisting of a manufacturer and a retailer. Either of them can move first to offer the other firm a wholesale price contract (WP) or a revenue sharing contract (RS), which is termed as “abatement level promise strategy” (PR) and “abatement level requirement strategy” (RQ), respectively. Our analysis shows that under both PR and RQ, there exists a unique abatement level maximizing the manufacturer's profit in WP and RS, respectively. Moreover, both firms' incentives for abatement are perfectly aligned under PR, but are misaligned under RQ when the marginal abatement cost is large. Contrary to conventional wisdom, RS does not necessarily dull the manufacturer's effort in abatement, it depends on whether she possesses first-mover advantage and whether consumers have environmental awareness. Further, with consumer environmental awareness (numerically) or without, both firms always prefer to possess first-mover advantage, but the system's profit under RQ is smaller than that under PR (numerically). Surprisingly, whether a greater share of revenue benefits a firm depending on whether the firm possesses first-mover advantage (numerically). Finally, under both RQ (numerically) and PR, RS fails to coordinate the system.