Competition in recycling and sales market between retailer and third party under cap and trade

Purpose The purpose of this paper is to investigate the impact of carbon price and competition intensity and the optimal decisions in a two-echelon low-carbon supply chain, consisting of a manufacturer, a retailer and a third party, under carbon cap and trade (CCT) and in two different competitive behaviors in the sales and recycling markets. First, two models are built and the optimal solutions are obtained. Second, a comparative analysis of these optimal solutions and the effects of some key parameters on optimal decisions are examined. Design/methodology/approach The authors adopt the manufacturer-led Stackelberg game theoretic framework, where the manufacturer decides the wholesale price, followed by the retailer and third party to determine the retail and recycling quantities. Moreover, the retailer and third party engage in Stackelberg or Cournot game. Findings Firstly, the CCT benefits the third party more. A rise in carbon price negatively affects manufacturer production and retailer recycling but boosts the third party’s recycling. Secondly, the Stackelberg model allows the third party to get more recycling volume and profit, while the Cournot model is better for the manufacturer and retailer. Thirdly, when faced with the increasing competition intensity in the recycling and sales market, the third party and retailer adopt various strategies in response to different competition intensities. Finally, social welfare in the Cournot model is higher in most of the cases, but when the third party and retailer’s recycling competition intensity decreases below a certain threshold, the social welfare in the Stackelberg model exceeds that in the Cournot model. Research limitations/implications Firstly, in both models, as the carbon price increases, the amounts of new products, the retailer’s recycling volume and profit decrease. The manufacturer’s profit rebounds when the carbon price surpasses a threshold. Secondly, when the third party faces a rise in the retailer’s recycling market competition, its strategy differs from that of the retailer in the sales market. Finally, the retailer and third party tend to set a higher recycling price than in the Cournot model. The retailer and manufacturer can obtain higher profits in the Cournot model, while the third party is more profitable in the Stackelberg model. Practical implications This paper can also further relax the assumptions, so our paper can expand the research from several aspects. First, this paper only considers the single-period model; thus, the multi-periods can be considered in the supply chain model. Second, only the consequences of the CCT mechanism are the subject of this paper. However, in real life, there are still carbon emissions reduction (CER) regulatory mechanisms such as carbon tax, so comparing and analyzing the effects of various CER mechanisms is an interesting task. Social implications The government should provide more support and opportunities for the third party in the early stage of development under the CCT mechanism. Meanwhile, the government ought to establish acceptable carbon quotas and strengthen the supervision of the carbon market. The manufacturer should monitor carbon price changes and adjust production and CER strategies and increase CER technology investment. The retailer should gather information and aim to make concurrent decisions with the third party. The third party should grasp decision-making initiative and be a competitive leader. The retailer and third party should closely watch competition intensity and flexibly adjust recycling and pricing strategies in both markets. Originality/value This paper concentrates on the scenario where retailer and third party compete in both the sales and recycling markets under CCT and focuses on the differences in competition intensity between retailer and third party. Furthermore, this paper considers different competitive behaviors and analyzes the optimal decisions of all parties when competing simultaneously in the sales and recycling markets, which provide more targeted guidance for practical operation.