Groupe d’études et de recherche en analyse des décisions

Environmental collaboration and green process innovation in supply chain management

Pietro De Giovanni ESSEC, Grande École de Commerce, France

This paper investigates a dynamic supply chain model in which a supplier decides both the wholesale price and the green process innovation investments while a manufacturer sets the final price. The green innovation investments positively contribute to the environmental performance and allow for a marginal production cost reduction. A trade-off exists between environmental performance and demand: The environmental performance positively influences the demand that, in turn, exerts some negative externalities to the environment (e.g., waste and emissions). We solve this trade-off and compare a wholesale price to a revenue sharing contract, in which some collaborative programs are also put in place. We show that environmental cooperation in green process innovation leads to a profit-Pareto-improving situation. Nevertheless, the environmental performance are not maximized inside the profit-Pareto-improving region, hence collaboration in green process innovation does not solve the trade-off between economic and environmental performance.

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