The Construction of the Green Supply System based on Game Theory

Green supply chain is a hot topic in current logistics management, but so far there is no precise definition. Scholars basically only consider the upstream and downstream enterprises in the green supply chain analysis, sometimes introducing government as an external factor. We suggest the enterprise, the government and the consumer are all endogenous variables in the green supply system. Using game theory, we analyze their behavior of joining the green supply system respectively, and find solutions under different conditions. A new management system is put forward, which has some realistic meanings. Keywords-supply chain management; static game; evolutionary game; the green supply system; Nash equilibrium I. CURRENT RESEARCH ANALYSIS Current researches on green logistics mainly fall into two categories, the game between upstream and downstream entrepreneurs in the supply chain, or the game between government and enterprises. Some researches set the upstream entrepreneurs and downstream entrepreneurs as bilateral sides of the game, while government is only an extrinsic factor. They analyze factors influencing the coordination between supply chain members, including cooperation and trust, their relationship, and pricing strategies. Some literatures research into the game between enterprises and government, including game between government’s power abuses and corporate bribery, game between government’s misconducts and enterprise’s pollution control. The responsibility mechanism for loss, and government’s action of asymmetric information are also considered. These researches mainly take consumer behavior as the external environmental factor, while the reality is that the consumer serves as the initiator of green supply chain, and the preference of consumers for green products is the internal motivation and one determinant for enterprises to step further in green production. Therefore, the consumer should be taken as a crucial variable in analysis instead of an external environmental factor. While most researches are about the upstream and downstream enterprises, almost none delves into exploring the green supply system consisting of these trilateral sides, government, enterprises, as well as consumers. II. MODELS ON GAME THEORY A. Analysis of enterprises entering the green supply system based on game theory 1) Assumptions a) Only two enterprises, Α and Β, exist in the market and they are all rational economic men, aiming to maximize their profits. b) There are two kinds of strategy that enterprises can choose from: a green mode, the manufacturing of green products, or a non-green mode, the manufacturing of nongreen products with the same function. c) The price, the unit cost and the incremental cost of the product are the same at two enterprises while choosing the same mode. d) Since green market is still in early development, people have relatively low awareness of green products, thereby resulting in lower consumption and demand of green products than that of non-green products. e) Each of the two enterprises has an accurate understanding of characteristics and utility but not the action of the other enterprise before making decisions. So the game between the two is one-stage static game of complete information. 2) Game model Based on the following assumptions, we build a game model to see whether enterprises will choose a green mode and enter the green supply system. We develop a general formula to calculate the profit π during an operation period, given q as the selling volume, p as the price, c as the unit cost, F as the fixed cost and ΔC as the incremental cost. Since a green mode requires enterprises to improve processes and to curb pollution, ΔC is larger when enterprises choosing a green mode rather than a non-green mode. Define ΔC as: V1-341 2011 International Conference on Social Science and Humanity IPEDR vol.5 (2011) © (2011) IACSIT Press, Singapore