Pricing strategy of closed-loop supply chain based on premium and penalty mechanism

This work analyzes the pricing strategy of closed-loop supply chain (CLSC) based on premium and penalty mechanism under decentralized decision-making using Stackelberg game. The four strategies (free strategy, subsidization strategy, carbon taxation strategy, subsidization and carbon taxation strategy) of premium and penalty mechanism are studied. The equilibrium values for CLSC member decisions are derived. Analytical results suggest that government should adopt the subsidization and carbon taxation strategy which can not only effectively reduce total carbon emissions, but also enhance recycling rate. Numerical results validate the conclusion, and further analyze the effects of subsidies and carbon taxes on the recycling rate, total carbon emissions and profits of CLSC.