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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