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A Newsboy Model with Quick Response under Sustainable Carbon Cap-N-Trade

Author

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  • Jinpyo Lee

    () (College of Business Administration, Hongik University, 94 Wausan-ro, Mapo-gu, Seoul 121-791, Korea)

  • Mi Lim Lee

    () (College of Business Administration, Hongik University, 94 Wausan-ro, Mapo-gu, Seoul 121-791, Korea)

  • Minjae Park

    () (College of Business Administration, Hongik University, 94 Wausan-ro, Mapo-gu, Seoul 121-791, Korea)

Abstract

In this study, we consider a carbon emission cap-and-trade system in which the policymaker decides the cap for carbon emissions for each company and also has the power to regulate the carbon price in the carbon trading market for the purpose of minimizing total carbon emissions. We assume that there are n companies regulated in terms of carbon emissions by the policymaker, each of which emits carbon when producing its own product. After learning the carbon cap and carbon price regulated by the policymaker, each company makes simultaneous pricing and production decisions using the quick response strategy, and can trade some of its carbon emissions in the carbon market at the carbon price set by the policymaker, if the carbon emissions are below the cap. We model this non-cooperative game between the policymaker and companies as a Stackelberg game in which the policymaker is the leader and the companies are the followers. We show that there exists an equilibrium for the policymaker’s carbon pricing decisions and each company’s production and pricing decisions. From this equilibrium, we derive a carbon cap for the company at which the amount of traded carbon emissions is zero. This implies that some company’s production and pricing decisions, even under carbon emission restrictions, will be equal to those without the carbon emission restrictions. Also, we find that companies participating in the carbon cap-and-trade system would reduce their carbon emissions through reduced production, but can have a chance to improve profit through control of the product’s selling price.

Suggested Citation

  • Jinpyo Lee & Mi Lim Lee & Minjae Park, 2018. "A Newsboy Model with Quick Response under Sustainable Carbon Cap-N-Trade," Sustainability, MDPI, Open Access Journal, vol. 10(5), pages 1-17, May.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:5:p:1410-:d:144338
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    References listed on IDEAS

    as
    1. Gérard P. Cachon & Robert Swinney, 2009. "Purchasing, Pricing, and Quick Response in the Presence of Strategic Consumers," Management Science, INFORMS, vol. 55(3), pages 497-511, March.
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    1. repec:gam:jsusta:v:11:y:2019:i:9:p:2680-:d:230132 is not listed on IDEAS
    2. repec:gam:jsusta:v:11:y:2019:i:6:p:1635-:d:215005 is not listed on IDEAS

    More about this item

    Keywords

    carbon cap-and-trade; dynamic pricing; newsboy model; quick response; Stackelberg game; sustainable operation management;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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