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Supply Chain Coordination and Consumer Awareness for Pollution Reduction

Author

Listed:
  • Bowon Kim

    () (Operations Strategy and Management Science, KAIST Business School, Seoul 02455, Korea)

  • Jeong Eun Sim

    () (Operations Strategy and Management Science, KAIST Business School, Seoul 02455, Korea)

Abstract

To understand the dynamics of the manufacturer’s effort to reduce pollution in a supply chain consisting of manufacturer, retailer, and consumers, we analyze four cases according to consumer awareness of the pollution’s harmful effect, i.e. , environmentally aware versus ignorant, and supply chain coordination, i.e. , competitive versus cooperative. Applying differential games, we derive managerial implications: the most significant is that the supply chain coordination strategy becomes irrelevant to reducing the pollution, if the consumers are not environmentally aware or sensitive enough. It highlights the critical role played by the consumer awareness in curbing the pollution in the supply chain. In addition, we find the transfer price and the potential market size are important factors to determine each case’s relative effectiveness. Under a regular condition, where the transfer price from the retailer to the manufacturer is sufficiently high, the consumer-aware and competitive case can generate a better outcome in reducing the pollution than those with ignorant consumers. However, the opposite might occur if the transfer price is excessively low, giving the manufacturer little motivation to make an effort to reduce the pollution. For the cooperative supply chain, it is the potential market size that determines whether the consumer-aware case is better than the consumer-ignorant. In fact, it turns out that there is a stronger result, i.e. , the feasibility condition enforces that the market is always big enough to make the consumer-aware cooperative case better than the consumer-ignorant cases. We further discuss managerial as well as policy implications of these analysis outcomes.

Suggested Citation

  • 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.
  • Handle: RePEc:gam:jsusta:v:8:y:2016:i:4:p:365-:d:68273
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    References listed on IDEAS

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    More about this item

    Keywords

    pollution reduction; supply chain coordination; consumer awareness;

    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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