The impact of cap-and-trade mechanism and consumers’ environmental preferences on a retailer-led supply Chain

Governments and consumers are paying more attention to environmental protection. China, Korea, and several European countries have implemented market-based cap-and-trade systems to reduce carbon emissions. At the same time, consumers are willing to pay more for low-carbon products. The decisions of manufacturers and retailers may be impacted by these factors. This paper considers a scenario with a model economy under the effects of a cap-and-trade policy, with consumers who prefer low-carbon products, and develops an evolutionary game (EG) model to examine the evolution of behaviors for powerful retailers (such as Amazon, Gome, Walmart, etc.) and manufacturers in a retailer-led supply chain. In such a supply chain, the retailers can choose whether or not to promote low-carbon products and manufacturers can choose whether or not to reduce carbon emissions. A Stackelberg game structure is used to identify the optimal decisions for manufacturers and retailers. A model is developed to investigate the stability of the equilibrium solutions of the evolutionary game. System dynamics is used to simulate and analyze dynamic and transient behaviors, and is used to simulate the evolutionary game in a Chinese appliance industry. The simulation results show that the emissions cap, the market price of carbon credits, and the consumers’ preferences for low-carbon products are key factors influencing the retailers’ and manufacturers’ behavior. To increase long-term profits for both retailers and manufacturers, the retailers and the manufacturers should make sustainable decisions in tandem.