Pricing strategy of environmental sustainable supply chain with internalizing externalities

The negative impact of business activities on resources and sustainability include pollution and environmental externalities, which are becoming more severe and attracting worldwide attention. This study investigates a mechanism for motivating supply chain members to collaboratively produce environmentally friendly products (EFPs), with an investment in pollution reduction and prevention and by considering environmental regulations and incentive policies From the perspective of supply chain members, we focus on studying optimal pricing strategies for environmentally sustainable supply chains and the relationship between firm performance and environmental policy incentives. By treating the EFP as an investment project, its economic feasibility can be evaluated in the context of the supply chain. Unlike traditional supply chain models, in our model, government policy incentives are shared within the supply chain through transfer price negotiations between manufacturers and suppliers. This study addresses the impact of government policy incentives on value transition and profit allotment in the collaborative supply chain system. (C) 2015 Elsevier B.V. All rights reserved.