Prisoner's dilemma on competing retailers' investment in green supply chain management

Abstract Nowadays, along with increased public environmental awareness and widespread upstream investments in green production, some retailers have begun to invest in the packaging and distribution processes to shape their public images and enhance their competitiveness. However, under the pressure of competition and existing upstream investments, retailers' incentives to invest may be weakened. In this paper, we study whether and when competing retailers should invest and explore the performance of the equilibrium outcome. First, we find that a retailer prefers to invest only with a high efficiency, which can endow her with a considerable demand improvement at an acceptable cost level. Second, we demonstrate that a retailer counterintuitively will not always benefit from her rival's investment inefficiency because the manufacturer in this case will reduce his investment level, which cannot sufficiently expand the product market size. Third, we verify the existence of a prisoner's dilemma for retailers under a medium investment efficiency because although green investment enhances demand, it also increases the unit cost and subsequently the retail price. Additionally, a retailer facing competition is especially unwilling to improve her price compared with her rival. Fourth, we present an interesting insight that the prisoner’ dilemma area will be decreased with a sufficient upstream investment efficiency since a retailer will focus less on the downstream competition for market occupation but more on the upstream investment that can expand the total market size. The decreased hostility alleviates the prisoner’ dilemma.