Pricing and low-carbon investment decisions in an emission dependent supply chain under a carbon labelling scheme

A low-carbon policy attracts the interests of businesses, consumers, and policy makers. The purpose of this paper is to investigate how a carbon labelling scheme could be integrated into operational decision-making for manufacturers and retailers. Three game theoretic models of a supply chain with one manufacturer and one retailer are built to investigate a manufacturer and retailer’s pricing and investment decision for products with different initial carbon footprints considering consumer environmental awareness. Through a systematic comparison and numerical analysis, the results show that a carbon labelling scheme can significantly reduce the overall carbon emission supply chain and have an initially negative impact on the manufacturer and retailer’s profits. However, in the medium–long run, manufacturers and retailers could yet achieve profitability through continuously investing in low-carbon technology.