Abstract: The retail price, carbon emission quality level, consumer environmental awareness(CEA) and sales effort level of products are four major factors which affect consumers' purchasing behavior. Recently, there has been growing research interests in low-carbon supply chain coordination. However, coordination of retail price, carbon emission quality level and sales effort level decisions for substitutable products in a competitive supply chain has not yet been investigated in the literature. A two-level supply chain (a manufacturer and a retailer) is analyzed. In the original state, supply chain sells only one type of ordinary product, but aims to release a new substitutable low-carbon product in addition to the ordinary product. Demand for both products is a function of the retail price as well as products' carbon emissions quality and retailer's sales efforts. The product's carbon emissions quality level is decided by the manufacturer while both retail price and sales effort level are the retailer's decision variable. A carbon emission reduction's collaboration model is constructed by introducing incentive compatibility mechanism. Three decision scenarios are modelled and compared:(1) decentralized decision scenario, (2) integrated decision scenario, and (3) collaborative decision scenario. Closed-form expressions of optimal retail price, sales effort and carbon emission quality level are derived for the first two scenarios, and a mathematical nonlinear programming model is developed for the collaborative decision scenario. It is found that the two categories of substitutable products can lead to a synergic situation where both members take advantage of more sales volume and more profit. Collaboration in launching both product types leads to a more lower prices, increases channel low carbonization degree, and ensures higher profits for both channel members than the decentralized decision making. Although coordinating decisions for substitutable products is a complex decision-making process, the proposed collaboration model is highly sophisticated and beneficial from both economic and environmental aspects and at the same time guarantees Pareto-improvement situation for both channel members. Finally, the results are illustrated through a numerical example.

Key words: low-carbon supply chain, carbon-emissions reduction, product demand substitution, supply chain coordination, game theory