Abstract:

In this paper， the supplier encroachment strategy and the green product development （GPD） investment strategy are studied in a supply chain， which consists of one supplier and one retailer. With the supplier’s encroachment strategy， the GPD’s optimal endogenous investment decision is solved. After that， the supplier’s optimal endogenous encroachment decision is derived， by comparing the expected profits of the supply chain members under none investment strategy， retailer investment strategy and supplier investment strategy. Finally， numerical studies are conducted to examine the impact of the consumer green sensitivity and channel substitution rates on the retailer and the supplier profits under different strategies. The main findings of the study are： （i） Both the retailer’s and supplier’s profits are the highest when the supplier invests in GPD， regardless of the supplier’s encroachment strategy. （ii） When no one invests in GPD or when the retailer invests in GPD， the supplier should not encroach into the retailer’s market； when the supplier invests in GPD， if the cost of investment is small or if consumers are more green-sensitive， then the supplier should choose the encroachment. （iii） The supplier’s green investment level is higher than the retailer’s green investment level. Given a GPD investment strategy， compared to no-encroachment strategy， supplier’s encroachment increases the level of green investment when the supplier invests in GPD and decreases the level of green investment when the retailer invests in GPD.

Key words: green product development, supplier encroachment, supply chain management, green investment