Analysis of Internal and External Funding Mechanisms Considering Green Consumer Loyalty: A Game-Theoretic Approach

Abstract

Since financing issues of research and development (R&D) directly determine the success of green supply chain initiatives, the choice of funding mechanisms becomes key for green supply chain participants. However, there are few quantitative studies on the financing issues of green supply chains. We study green R&D financing issues for a two-echelon green supply chain, in which a green manufacturer and a regular manufacturer produce and sell green and regular products to a retailer, respectively. External and internal funding mechanisms as well as consumer green loyalty are considered in this study, which encourages green manufacturers to produce environment-friendly products. Three game models, namely, a partially centralized system, government subsidy, and two-part tariff contract scenarios, are formulated to investigate green R&D financing issues. The analytical results show that: (a) Government subsidies cannot effectively promote green manufacturers to improve the greenness of products if the amount of the government subsidy does not exceed a threshold. (b) Under government subsidy schemes, with an increase in subsidies, the output of green products first reaches the level under the partially centralized system, followed by the greenness of products. (c) The two-part tariff contract with a reasonable fixed fee can effectively coordinate retailers and green manufacturers to achieve cooperation, in which the greenness level of products and the retail price are equal to the values under the partially centralized system. (d) Retailers and green manufacturers have different preferences of financing modes; two-part tariff contracts are favored by retailers, while government subsidies are preferred by green manufacturers.INDEX TERMS Game theory, green loyalty, green supply chain, subsidy, two-part tariff contract.

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