The Implications of Vertical Strategic Interaction on Green Technology Investment in a Supply Chain

Numerous studies on supply chains have indicated that vertical strategic interactions usually involve the classical double marginalization problem, leading to a downward distortion in profitability. However, at present, the implications of vertical strategic interactions for green technology investment in a supply chain are not all that clear. In particular, such a vertical interaction not only can translate into profits between different parties, but usually also involves differentiated environmental performance. A question which arises is: who is the right undertaker for green technology investment in a supply chain, the supplier or retailer? To answer this question, we highlight the implications of vertical strategic interaction for green technology investment in a supply chain. To fill this gap, using a game-theoretic approach, we formulate two models: (a) Model M, in which an upstream manufacturer adopts technologies to meet consumer demand; and (b) Model R, where a retailer integrates environmental concerns into their supply chain decisions. We find that the retailer, who is closer to the customer, is the more effective undertaker for green technology investment, as this not only creates higher profitability for both parties, but also achieves a more sustainable scheme for our environment. When green technologies are invested in by the manufacturer, the double marginalization effect not only may downward-distort their economic performance but can also reduce the equilibrium of product greenness.