Sustainable competition and cooperation: a game-theoretical analysis of substitutable green products

This paper investigates the price and quality level (QL) decisions within a two-stage green supply chain, involving environmentally aware duopolistic manufacturers and one retailer. Both manufacturers provide substitutable green products that are sold through a common retailer. The selling price and QL of each product determines its demand. The study explores the impact of power structures on optimal QL and price decisions through one centralised and two-decentralized game model: manufacturer-led Bertrand competition (MB), and manufacturer-led horizontal alliance (cooperation) (HC). Again, a partial vertical alliance (VA model) is created between one manufacturer and retailer to optimize pricing, QLs, and profits. Stackelberg and Bertrand's games were used to solve these models. The results of the proposed decentralized (MB and HC) and VA models show that the overall profit in the VA model is greater than the sum of the individual profits corresponding to two members in the decentralized model. At the same time, the manufacturer outside the alliance experiences a decline in profits. The VA model yields the product with a higher QL but a lower selling price. From an applied perspective, the VA model provides the market with greener products at a lower cost. A selection criterion is also established for the retailer to select an appropriate manufacturer to form VA. Numerical and sensitivity analyses are presented to facilitate a better understanding of the developed models.