Equity financing for carbon emission reduction supported by platform retailer: bane or boon for supplier encroachment?

Abstract

This study examines a low-carbon supply chain consisting of a capital-constrained supplier and a platform retailer that links the supplier and consumers directly in addition to reselling products. The retailer facilitates the supplier in raising the green value of products by fully investing in carbon emission reduction activities, while the supplier chooses whether to encroach on the retailer. Using game theory, we examine the relationship between the supplier's encroachment decision and the retailer's investment plan for reducing carbon emissions. Then, we analyze the equilibrium profits of the firms under different carbon emission reduction investment strategies and discover that, in multiple instances, the retailer gains from the supplier encroachment. The advantage stems from the revenue through the direct selling channel in addition to the decrease in the double marginalisation. The retailer's carbon emission reduction investment has a cost-sharing effect, alleviating the intrusion burden on the supplier. The findings suggest that a retailer may not necessarily aim to prevent supplier encroachment through the investment in carbon emission reduction activities. A supplier with limited capital may be induced to encroach on the retailer with such an investment in certain instances. Finally, managerial implications are examined and presented.

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