Optimal pricing policy for green products under supply disruption

Abstract

In recent years, the frequency and extent of supply disruptions have caused serious challenges for supply chains worldwide. To address the resulting supply–demand mismatches, supply chain partners regularly have employed various pricing strategies. First, this study focuses on presenting an optimal pricing model and analysis for a retailer in a monopoly market under supply disruption, which impacts the offerings of two substitutable products with different degrees of greenness. Next, the study presents and analyzes optimal pricing decisions for a retailer in a duopoly market, where two competing retailers have similar product offerings. Results for the monopoly market indicate that as the disruption duration increases, to compensate for the increased waiting time, the price of the greener product should decrease, while the price of the less green product may either increase or decrease depending on the consumer’s sensitivity to price and wait times. In addition, the price difference between the products grows with the disparity in their degrees of greenness. In a duopoly market, the non-disrupted retailer can capitalize on their competitors’ supply issues by adjusting their pricing strategies accordingly. Sensitivity analyses conducted under both monopoly and duopoly markets reveal the impacts of critical factors individually and in combinations. These findings provide actionable insights for retailers to strategically manage product pricing and demand in the face of green supply chain disruptions.

Keywords

• Pricing
• Supply disruption
• Green products
• Product substitutions
• Retail competition
• Sustainable supply chain