Regulatory versus consumer pressure and retailer responsibility for upstream pollution in a supply chain

In this paper, we investigate the impacts of regulatory pressure and consumer pressure on manufacturer emissions in a supply chain. The manufacturer generates emissions as a byproduct of production activities and determines abatement efforts, while the retailer sets the sales price. The government imposes emission penalties, and consumer demand decreases in sales price and manufacturer emissions. Our results suggest that, while regulatory pressure serves as an effective pollution-curbing measure, consumer pressure can backfire in a supply chain when the manufacturer has a relatively low unit margin. This adverse environmental effect of consumer pressure does not appear in the centralized chain, which means that supply chain interaction causes the counterintuitive effect. We also investigate a policy initiative to impose a fraction of the penalties on the retailer to make the retailer responsible for manufacturer emissions and find that this initiative can curb the manufacturer emissions under a price-sensitive market. Finally, we show that while regulatory and consumer pressures generally exhibit a substitute relationship in curbing emissions, retailer responsibility may have a complementary relationship with both regulatory pressure and consumer pressure.