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Strategic response to pollution taxes in supply chain networks: Dynamic, spatial, and organizational dimensions

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  • Chung, Sung H.
  • Weaver, Robert D.
  • Friesz, Terry L.

Abstract

This paper presents a model of the strategic behavior of firms operating in a spatial supply chain network. The manufacturing and retailing firms engage in an oligopolistic, noncooperative game by sharing customer demand such that a firm’s decisions impact the product prices, which in turn result in changes in all other firms’ decisions. Each firm’s payoff is to maximize its own profit and we show that, in response to such changes in prices and to exogenous environmental taxes, the manufacturing firms may strategically alter a variety of choices such as ’make-buy’ decisions with respect to intermediate inputs, spatial distribution of production, product shipment patterns and inventory management, environmental tax payment vs recycling decisions, and timing of all such choices to sustainably manage the profit and the environmental regulations. An important implication is that effects of a tax depends on the oligopolistic game structure. With respect to methods, we show that this dynamic game can be represented as a set of differential variational inequalities (DVIs) that motivate a computationally efficient nonlinear complementarity (NCP) approach that enables the full exploitation of above-mentioned salient features. We also provide a numerical example that confirms the utility of our proposed framework and shows substantial strategic reaction can be expected to a tax on pollution stocks.

Suggested Citation

  • Chung, Sung H. & Weaver, Robert D. & Friesz, Terry L., 2013. "Strategic response to pollution taxes in supply chain networks: Dynamic, spatial, and organizational dimensions," European Journal of Operational Research, Elsevier, vol. 231(2), pages 314-327.
  • Handle: RePEc:eee:ejores:v:231:y:2013:i:2:p:314-327
    DOI: 10.1016/j.ejor.2013.05.036
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sung Hoon Chung & Robert D. Weaver & Hyun Woo Jeon, 2020. "Sustainable Management of Remanufacturing in Dynamic Supply Chains," Networks and Spatial Economics, Springer, vol. 20(3), pages 703-731, September.
    2. Saberi, Sara, 2018. "Sustainable, multiperiod supply chain network model with freight carrier through reduction in pollution stock," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 421-444.
    3. repec:gam:jsusta:v:8:y:2016:i:4:p:365:d:68273 is not listed on IDEAS
    4. Ciardiello, F. & Genovese, A. & Simpson, A., 2019. "Pollution responsibility allocation in supply networks: A game-theoretic approach and a case study," International Journal of Production Economics, Elsevier, vol. 217(C), pages 211-217.
    5. Long, Jiancheng & Szeto, W.Y. & Huang, Hai-Jun, 2014. "A bi-objective turning restriction design problem in urban road networks," European Journal of Operational Research, Elsevier, vol. 237(2), pages 426-439.
    6. Chung, Sung H. & Weaver, Robert D. & Friesz, Terry L., 2012. "Oligopolies in pollution permit markets: A dynamic game approach," International Journal of Production Economics, Elsevier, vol. 140(1), pages 48-56.
    7. Zhen, Lu, 2014. "A three-stage optimization model for production and outsourcing under China’s export-oriented tax policies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 1-20.
    8. Bowon Kim & Jeong Eun Sim, 2016. "Supply Chain Coordination and Consumer Awareness for Pollution Reduction," Sustainability, MDPI, Open Access Journal, vol. 8(4), pages 1-20, April.
    9. Ouardighi, Fouad El & Sim, Jeong Eun & Kim, Bowon, 2016. "Pollution accumulation and abatement policy in a supply chain," European Journal of Operational Research, Elsevier, vol. 248(3), pages 982-996.
    10. Francesco Ciardiello & Andrea Genovese & Andrew Simpson, 2020. "A unified cooperative model for environmental costs in supply chains: the Shapley value for the linear case," Annals of Operations Research, Springer, vol. 290(1), pages 421-437, July.
    11. Bowon Kim & Jeong Eun Sim & Caroline Elliott, 2015. "Impacts of government and market on firm’s efforts to reduce pollution," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1062634-106, December.
    12. Liu, Qian & Zheng, Lucy, 2016. "Assessing the economic performance of an environmental sustainable supply chain in reducing environmental externalitiesAuthor-Name: Ding, Huiping," European Journal of Operational Research, Elsevier, vol. 255(2), pages 463-480.

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