Supply chain coordination with revenue‐sharing contracts considering carbon emissions and governmental policy making

Considering the opening up of carbon emission trading market, this article investigates the government's role in allocating the appropriate emission quota to maximize social members' (including enterprises and customers) utilities and analyzes how the emission‐dependent enterprise improves revenues of both itself and the whole system through supply chain collaboration. Within this, a two‐echelon supply chain consisting of one emission‐dependent manufacturer and one retailer is discussed. Taking revenue‐sharing contract into account and combining practical situations with Stackelberg game method, decision‐makings of traditional supply chain (T‐SC) without carbon emission limits and carbon‐emission‐considering supply chain (C‐SC) are examined, respectively, along with the determination of the optimal range of revenue‐sharing ratio. Furthermore, government's policy making in distributing the optimal emission quota is studied as well as supply chain members' efforts on fulfilling the revenue‐sharing contract to accomplish Pareto improvements of social members' utilities. It is proved that profits of both manufacturer and retailer increase with the growth of the emission quota, proper governmental regulations not only help to achieve balance among social members but also improve overall utilities, and a reasonable revenue‐sharing contract is essential to raise supply chain members' profits even under low‐carbon conditions. © 2015 American Institute of Chemical Engineers Environ Prog, 35: 479–488, 2016