Creating a low carbon economy through green supply chain management: Investigation of willingness-to-pay for green products from a consumer’s perspective

In recent decades, governments have gradually invested in and provided an increasing amount of resources to increase consumers’ willingness-to-pay (WTP) for green products, with the aim of improving both the local and global environment rather than primarily concentrating on the economic gains. However, it is argued that the increase in WTP for green products may not always bring the expected benefits for the environment. Some studies have tried to explain this ‘special phenomenon’ with reference to the green supply chain; however, the effect of WTP on green products remains underexplored, particularly from a consumer perspective. This study therefore investigates how consumers’ WTP for green products affects the decisions made by the green supply chain players (retailers and manufacturers) via a green cost-sharing contract, in a context of uncertainty about consumers’ perceptions of green products and thus how much utility they could expect to receive from them, in order to contribute to a low carbon economy. Through the application of game theory and uncertainty theory, our findings show that a higher consumer WTP for green products usually leads to a higher retail price and market share of green products, which motivates retailers and manufacturers to invest more in green technology. We also find that an increased WTP for green products can spur retailers to reduce the optimal green cost-sharing rate due to the pressure of increasing costs. This discourages manufacturers from investing more in green technology, which may in turn hinder the further development of environmental initiatives. In addition, we find that retailers are willing to lower the cost sharing rate when the confidence level increases. Regarding the contributions made by this study, it is one of the first to explore the transmission mechanisms involved in the management of the green supply chain by linking consumers’ WTP for green products to strategic decisions made by green supply chain players under conditions of uncertainty. Furthermore, our study could help green supply chain players to optimise the cost sharing mechanisms they use to generate more revenue, due to the increase in WTP for green products, which will in turn help to facilitate a low carbon economy.