Carbon emissions hedging and green marketing

This paper investigates a hedging and green marketing coordination problem for a supply chain under which a manufacturer sells products through a retailer to satisfy demand which is sensitive to both green marketing and product greenness. Green marketing promotes demand but requires the retailer to make extra investment. Product greenness depends on the actual realized carbon emission abatement (CEA). However, due to uncertainties during the production process, the realized CEA often less than its target level. To entice the retailer to pay more effort on green marketing, some manufacturers enhance the product greenness by taking proactive activities to hedge against CEA uncertainties, which is referred to as carbon emission hedging (CEH). To examine the effect of CEH on green marketing and channel performances, we proposed a CEH and green marketing mechanism (CG mechanism). Moreover, since the game follower usually exhibits fairness concerns, we also explore the various combinations of the retailer’s fairness concern behaviour and the manufacturer’s attitude towards this behaviour. We find that adopting the CEH strategy promotes the green marketing and the CG mechanism always coordinates the supply chain when the retailer is fairness-neutral or his fairness-concern level is not sufficiently high (e.g. λ₁ ≈ 0.9). Besides, lower consumer price sensitivity and higher consumer green marketing/product greenness sensitivity/amplification effect of CEH on green marketing improve the market demand and the retailer’s profit, but not necessarily benefit the manufacturer. Additionally, being fairness-concerned is not always beneficial for the retailer and ignoring the retailer’s fairness concern often harms the manufacturer.