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market. We focus on the challenge of encouraging the transportation of EDRMs for
voluntary consumption by considering effective economic instruments and different
configurations of the green supply chain system driven by economic incentives. Although
remarkable progress has been made by pioneering studies in promoting material recycling,
several critical issues remain unsolved and thus motivate this study. Sheu, Chou, and Hu,
(2005), Sheu and Chen (2014), and Chen and Sheu (2009) suggested the use of economic
instruments in strategic planning for a closed-loop supply chain. Drawing on global green
legislation, such as the Waste Electrical and Electronic Equipment Directive, Fleischmann,
Kuik, and Dekker (2002) argued that government standards are at least indispensable in
correcting the market failure of EDRMs, promoting awareness of pollution reduction, and
imposing responsibility on manufacturers.
Literature on recycling and closed-loop supply chains has only partially discussed the
effects of competition (Majumder and Groenevelt, 2001; Debo, Toktay, and Van
Wassenhove, 2005; Ferrer and Swaminathan, 2006). The use of economic incentives to
promote material recycling has also been extensively investigated in environmental
economics (fnUlph, 1996; Walls and Palmer, 2001; Benchekroun and Van Long, 2002).
Ferrer and Swaminathan (2006) facilitated competition in manufacturing operations in
monopoly and duopoly environments under the assumption of the homogeneous value of
recycled materials. Competition should be addressed in environmental policy because its
effectiveness heavily depends on market response. Without competition, manufacturers can
easily transfer their environmental cost to consumers by raising selling prices. Even in a
mandatory recycling system, manufacturers can still transfer responsibility to third parties
without altering their production formula.
Given that previous studies rarely considered the value and cost of designing incentive
mechanisms and thus resulted in unbalanced literature on closed-loop supply chains, we
focus on the economic issue in the manufacturing market rather than the consumer market
and consequently build a quantity competition model for the industrial market. A
manufacturer’s decisions, such as that for production quantity, determine the operational
strategies of an integrated supplier moving toward equilibrium conditions driven by
governmental economic incentives. The manufacturer must rely heavily on the decisions of
both governments and EDRM suppliers in determining the production amount of green
products in green supply chains.