Supply Chain Design and Carbon Penalty: Monopoly vs. Monopolistic Competition

Seung Jae Park, Gérard P. Cachon, Guoming Lai, Sridhar Seshadri

Research output: Contribution to journalArticlepeer-review


This paper studies whether imposing carbon costs changes the supply chain structure and social welfare. We explore the problem from a central policymaker's perspective who wants to maximize social welfare. We consider two stakeholders, retailers, and consumers, who optimize their own objectives (i.e., profits and net utility) and three competitive settings (i.e., monopoly, monopolistic competition with symmetric market share, and monopolistic competition with asymmetric market share). For the monopoly case, we find that when the retailer's profit is high, imposing some carbon emission charges on the retailer and the consumers does not substantially change the supply chain structure or the social welfare. However, when the retailer's profit is low, imposing carbon costs optimally can lead to a significant increase in social welfare. Moreover, the impact of imposing carbon emission charges becomes more significant when the degree of competition increases. Additionally, the quantum of benefit may depend only on factors common across industries, such as fuel and carbon costs.

Original languageEnglish (US)
Pages (from-to)1494-1508
Number of pages15
JournalProduction and Operations Management
Issue number9
StatePublished - Sep 1 2015
Externally publishedYes


  • carbon tax
  • monopolistic competition
  • policy making
  • supply chain design
  • sustainability

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation


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