Consumer environmental awareness and channel coordination with two substitutable products

This paper focuses on the impact of consumer environmental awareness (CEA) on order quantities and channel coordination within a one-manufacturer and one-retailer supply chain. The manufacturer produces two types of products: the environmental and the traditional products. These two products differ in their price and environmental quality. Based on the multi-product newsvendor model, this study compares three decision scenarios: the centralized model (M1), the decentralized model (M2), and the decentralized model with the coordination of a return contract (M3). The closed-form expressions of optimal order quantities, wholesale prices and return credits are derived for each scenario. Extending these models, we incorporate a production capacity constraint of the manufacturer. Finally, sensitivity analyses on model parameters are performed and numerical examples are provided.