Governmental cap regulation and manufacturer’s low carbon strategy in a supply chain with different power structures

Abstract Considering the cap-and-trade regulation and manufacturer’s two types of strategies: adopting green technology (GT) and purchasing carbon credits (PC), we develop game models to investigate the manufacturer’s production and emission abatement decisions as well as the governmental emission cap regulation in a supply chain with three power structures (Manufacturer Stackelberg (MS), Retail Stackelberg (RS) and Vertical Nash (VN)), and analyze how a manufacturer’s low carbon strategy changes with the various governmental cap under the three supply chain power structures. The main conclusions are as follows. If the manufacturer adopts green technology strategy, supply chain power structure will not affect social welfare. High consumer’s low-carbon preference is more beneficial to the social welfare, the government should advocate the consumer’s preference for low carbon product. If the manufacturer purchases carbon credits, the government under the power structure of VN will gain the most social welfare.