Strategic pricing and coordination in a closed-loop supply chain under cap-and-trade regulation: a quality improvement perspective

Fuli Zhou; Yueli Li; Bo Yu; Shouqin Zhou; Saurabh Pratap; Amir Karbassi Yazdi; Gonzalo Valdés González; Fuli Zhou; Yueli Li; Bo Yu; Shouqin Zhou; Saurabh Pratap; Amir Karbassi Yazdi; Gonzalo Valdés González

doi:10.3934/jimo.2026035

Journal of Industrial and Management Optimization

2026, Volume 22, Issue 2: 944-970. doi: 10.3934/jimo.2026035

Previous Article Next Article

Research article

Strategic pricing and coordination in a closed-loop supply chain under cap-and-trade regulation: a quality improvement perspective

1.
College of Economics and Management, Zhengzhou University of Light Industry, Zhengzhou, China
2.
School of Mechanical Engineering and Mechanics, Xiangtan University, Xiangtan, China
3.
Department of Mechanical Engineering, Indian Institute of Technology (IIT BHU), Varanasi, India
4.
Departamento de Ingeniería Industrial y de Sistemas, Facultad de Ingeniería, Universidad de Tarapacá, Arica, Chile

Received: 23 July 2025 Revised: 08 November 2025 Accepted: 24 November 2025 Published: 20 January 2026
Primary: 90B06

Under the cap-and-trade regulation (CATR), remanufacturing is regarded as an effective approach for the low-carbon transformation of production methods. However, the quality of remanufactured products is frequently subject to skepticism. Although quality improvement can enhance market competitiveness, it inevitably leads to higher costs. Given this, we attempted to investigate the coordination mechanism of a closed-loop supply chain (CLSC) under the CATR, taking quality improvement into account. The centralized and decentralized models were constructed to analyze the specific impact of product quality improvement on the decision-making of CLSC members. In addition, to motivate manufacturers to improve product quality, we introduced a revenue sharing contract (RSC) between retailers and manufacturers to help achieve coordination. It was found that the degree of quality upgrading decreases as the cost coefficient of quality improvement investment rises. Under these circumstances, product demand declines even when prices are lowered. The numerical study demonstrates that the designed RSC is effective to help realizing the coordination of the CLSC.
- quality improvement,
- carbon cap-and-trade regulation (CATR),
- closed-loop supply chain (CLSC),
- revenue sharing contract (RSC),
- stackelberg game theory
Citation: Fuli Zhou, Yueli Li, Bo Yu, Shouqin Zhou, Saurabh Pratap, Amir Karbassi Yazdi, Gonzalo Valdés González. Strategic pricing and coordination in a closed-loop supply chain under cap-and-trade regulation: a quality improvement perspective[J]. Journal of Industrial and Management Optimization, 2026, 22(2): 944-970. doi: 10.3934/jimo.2026035

Related Papers:

Abstract

Under the cap-and-trade regulation (CATR), remanufacturing is regarded as an effective approach for the low-carbon transformation of production methods. However, the quality of remanufactured products is frequently subject to skepticism. Although quality improvement can enhance market competitiveness, it inevitably leads to higher costs. Given this, we attempted to investigate the coordination mechanism of a closed-loop supply chain (CLSC) under the CATR, taking quality improvement into account. The centralized and decentralized models were constructed to analyze the specific impact of product quality improvement on the decision-making of CLSC members. In addition, to motivate manufacturers to improve product quality, we introduced a revenue sharing contract (RSC) between retailers and manufacturers to help achieve coordination. It was found that the degree of quality upgrading decreases as the cost coefficient of quality improvement investment rises. Under these circumstances, product demand declines even when prices are lowered. The numerical study demonstrates that the designed RSC is effective to help realizing the coordination of the CLSC.

References

[1]	K. Levin, D. Rich, Turning points: trends in countries' reaching peak greenhouse gas emissions over time, World Resources Institute, 2017.
[2]	Y. Chen, Z. W. Xu, Z. X. Zhang, W. L. Ye, Y. N. Yang, Z. J. Gong, Does the carbon emission trading scheme boost corporate environmental and financial performance in China? J. Clean. Prod., 368 (2022), 133151. https://doi.org/10.1016/j.jclepro.2022.133151 doi: 10.1016/j.jclepro.2022.133151
[3]	Z. B. Jing, Z. D. Liu, T. Wang, X. Zhang, The impact of environmental regulation on green TFP:a quasi-natural experiment based on China's carbon emissions trading pilot policy, Energy, 306 (2024), 132357. https://doi.org/10.1016/j.energy.2024.132357 doi: 10.1016/j.energy.2024.132357
[4]	Q. Q. Weng, H. Xu, A review of China's carbon trading market, Renew. Sustain. Energy Rev., 91 (2018), 613–619. https://doi.org/10.1016/j.rser.2018.04.026 doi: 10.1016/j.rser.2018.04.026
[5]	P. Y. Cheng, T. S. Wang, Optimizing the emission control policies and trade-in program effects: a carbon-constrained closed-loop supply chain network model, Transp. Res. Part E Logist. Transp. Rev., 179 (2023), 103311. https://doi.org/10.1016/j.tre.2023.103311 doi: 10.1016/j.tre.2023.103311
[6]	F. L. Zhou, C. C. Zhang, S. Tiwari, X. J. Huang, S. Pratap, Decision and coordination of WEEE closed-loop supply chain with risk aversion under the cap-and-trade regulation, Int. J. Prod. Econ., (2024), 109477. https://doi.org/10.1016/j.ijpe.2024.109477 doi: 10.1016/j.ijpe.2024.109477
[7]	S. S. Ali, R. Kaur, F. Ersöz, B. Altaf, A. Basu, G. W. Weber, Measuring carbon performance for sustainable green supply chain practices: a developing country scenario, Cent. Eur. J. Oper. Res., 28 (2020), 1389–1416. https://doi.org/10.1007/s10100-020-00673-x doi: 10.1007/s10100-020-00673-x
[8]	M. Alegoz, O. Kaya, Z. P. Bayindir, A comparison of pure manufacturing and hybrid manufacturing-remanufacturing systems under carbon tax policy, Eur. J. Oper. Res., 294 (2021), 161–173. https://doi.org/10.1016/j.ejor.2021.01.018 doi: 10.1016/j.ejor.2021.01.018
[9]	X. P. Wang, Z. Z. Gao, C. Zhang, C. Su, Dual reference effect and dynamic control of quality improvement and low-carbon effort under nonlinear demand, J. Clean. Prod., 418 (2023), 138225. https://doi.org/10.1016/j.jclepro.2023.138225 doi: 10.1016/j.jclepro.2023.138225
[10]	E. Özceylan, N. Demirel, C. Çetinkaya, E. Demirel, A closed-loop supply chain network design for automotive industry in Turkey, Comput. Ind. Eng., 113 (2017), 727–745. https://doi.org/10.1016/j.cie.2016.12.022 doi: 10.1016/j.cie.2016.12.022
[11]	G. W. Weber, A. Goli, E. B. Tirkolaee, Logistics and Operations Modelling and Optimization for Sustainable Supply Chain, Sustainability, 15 (2023), 12727. https://doi.org/10.3390/su151712727 doi: 10.3390/su151712727
[12]	Z. Zhang, S. Liu, B. Niu, Coordination mechanism of dual-channel closed-loop supply chains considering product quality and return, J. Clean. Prod., 248 (2020), 119273. https://doi.org/10.1016/j.jclepro.2019.119273 doi: 10.1016/j.jclepro.2019.119273
[13]	T. Chakraborty, S. S. Chauhan, M. Ouhimmou, Cost-sharing mechanism for product quality improvement in a supply chain under competition, Int. J. Prod. Econ., 208 (2019), 566–587. https://doi.org/10.1016/j.ijpe.2018.12.015 doi: 10.1016/j.ijpe.2018.12.015
[14]	A. A. Taleizadeh, N. Alizadeh-Basban, S. T. A. Niaki, A closed-loop supply chain considering carbon reduction, quality improvement effort, and return policy under two remanufacturing scenarios, J. Clean. Prod., 232 (2019), 1230–1250. https://doi.org/10.1016/j.jclepro.2019.05.372 doi: 10.1016/j.jclepro.2019.05.372
[15]	X. Chen, X. Wang, H. K. Chan, Manufacturer and retailer coordination for environmental and economic competitiveness: a power perspective, Transp. Res., Part E, Logist. Transp. Rev., 97 (2017), 268–281. https://doi.org/10.1016/j.tre.2016.11.007 doi: 10.1016/j.tre.2016.11.007
[16]	P. Majumder, A. Srinivasan, Leader location, cooperation, and coordination in serial supply chains, Prod. Oper. Manag., 15 (2006), 22–39. https://doi.org/10.1111/j.1937-5956.2006.tb00001.x doi: 10.1111/j.1937-5956.2006.tb00001.x
[17]	I. Özcan, S. Z. A. Gök, G. W. Weber, Peer group situations and games with fuzzy uncertainty, J. Ind. Manage. Optim., 20 (2024), 428–438. https://doi.org/10.3934/jimo.2023084 doi: 10.3934/jimo.2023084
[18]	V. D. R. Guide, L. N. V. Wassenhove, Closed-loop supply chains: practice and potential, Interfaces, 33 (2003), 1–2. https://doi.org/10.1287/inte.33.6.1.25185 doi: 10.1287/inte.33.6.1.25185
[19]	Z. B. Zou, J. J. Wang, G. S. Deng, H. Chen, Third-party remanufacturing mode selection: outsourcing or authorization? Transp. Res. Part E Logist. Transp. Rev., 87 (2016), 1–19. https://doi.org/10.1016/j.tre.2015.12.008 doi: 10.1016/j.tre.2015.12.008
[20]	G. Raz, G. C. Souza, recycling as a strategic supply source, Prod. Oper. Manag., 27 (2018), 902–916. https://doi.org/10.1111/poms.12851 doi: 10.1111/poms.12851
[21]	X. X. Zheng, Z. Liu, K. W. Li, J. Huang, J. Chen, Cooperative game approaches to coordinating a three-echelon closed-loop supply chain with fairness concerns, Int. J. Prod. Econ., 212 (2019), 92–110. https://doi.org/10.1016/j.ijpe.2019.01.011 doi: 10.1016/j.ijpe.2019.01.011
[22]	C. H. Wu, A dynamic perspective of government intervention in a competitive closed-loop supply chain, Eur. J. Oper. Res., 294 (2021), 122–137. https://doi.org/10.1016/j.ejor.2021.01.014 doi: 10.1016/j.ejor.2021.01.014
[23]	F. J. Yao, E. Parilina, G. Zaccour, H. W. Gao, Accounting for consumers' environmental concern in supply chain contracts, Eur. J. Oper. Res., 301 (2022), 987–1006. https://doi.org/10.1016/j.ejor.2021.11.039 doi: 10.1016/j.ejor.2021.11.039
[24]	Y. T. Huang, Z. J. Wang, The interaction between manufacturer-encroachment and information sharing in a closed-loop supply chain under technology licensing, J. Oper. Res. Soc., 75 (2024), 1761–1776. https://doi.org/10.1080/01605682.2023.2274950 doi: 10.1080/01605682.2023.2274950
[25]	H. F. Song, X. F. Li, J. L. Chen, L. Mitkova, G. J. Li, Dynamic decisions of the manufacturer-led closed-loop supply chain considering altruistic behavior in EV battery, J. Clean. Prod., 472 (2024), 143385. https://doi.org/10.1016/j.jclepro.2024.143385 doi: 10.1016/j.jclepro.2024.143385
[26]	Y. X. Huang, P. F. He, T. C. E. Cheng, S. Y. Xu, C. Pang, H. J. Tang, Optimal strategies for carbon emissions policies in competitive closed-loop supply chains: A comparative analysis of carbon tax and cap-and-trade policies, Comput. Ind. Eng., 195 (2024), 110423. https://doi.org/10.1016/j.cie.2024.110423 doi: 10.1016/j.cie.2024.110423
[27]	Y. Y. Chen, Q. G. Bai, J. T. Xu, Comparison of competing supply chains with different structures under cap-and-trade regulation, RAIRO, Oper. Res., 58 (2024), 1653–1680. https://doi.org/10.1051/ro/2024040 doi: 10.1051/ro/2024040
[28]	Y. C. Tsao, H. T. T. Ai, Remanufacturing electric vehicle battery supply chain under government subsidies and carbon trading: Optimal pricing and return policy, Appl. Energy, 375 (2024), 124063. https://doi.org/10.1016/j.apenergy.2024.124063 doi: 10.1016/j.apenergy.2024.124063
[29]	K. H. Jia, X. W. Liao, J. Feng, Selling or leasing? Dynamic pricing of software with upgrades, Eur. J. Oper. Res., 266 (2018), 1044–1061. https://doi.org/10.1016/j.ejor.2017.10.063 doi: 10.1016/j.ejor.2017.10.063
[30]	P. D. Giovanni, G. Zaccour, Optimal quality improvements and pricing strategies with active and passive product returns, Omega, 88 (2019), 248–262. https://doi.org/10.1016/j.omega.2018.09.007 doi: 10.1016/j.omega.2018.09.007
[31]	Q. Huang, J. Ignatius, H. M. Song, J. S. Bian, C. R. Gong, Impact of loyal and new customer segments on product upgrades: the role of quality differentiation through online reviews, Eur. J. Oper. Res., 324 (2025). https://doi.org/10.1016/j.ejor.2024.12.045 doi: 10.1016/j.ejor.2024.12.045
[32]	G. D. Li, M. Reimann, W. H. Zhang, When remanufacturing meets product quality improvement: the impact of production cost, Eur. J. Oper. Res., 271 (2018), 913–925. https://doi.org/10.1016/j.ejor.2018.05.060 doi: 10.1016/j.ejor.2018.05.060
[33]	D. Z. Feng, C. Shen, Z. Pei, Production decisions of a closed-loop supply chain considering remanufacturing and refurbishing under government subsidy, Sustain. Prod. Consum., 27 (2021), 2058–2074. https://doi.org/10.1016/j.spc.2021.04.034 doi: 10.1016/j.spc.2021.04.034
[34]	Y. J. Ma, G. Du, R. J. Jiao, Design for product upgradability considering remanufacturing outsourcing: a three-level joint optimization approach, Int. J. Prod. Econ., 272 (2024), 109233. https://doi.org/10.1016/j.ijpe.2024.109233 doi: 10.1016/j.ijpe.2024.109233
[35]	H. Y. Mao, W. B. Wang, C. H. Liu, Y. Xu, S. Y. Zhao, Effects of the carbon emission quota policy on the quality and sales of manufactured and remanufactured products, Int. J. Prod. Econ., 266 (2023), 109058. https://doi.org/10.1016/j.ijpe.2023.109058 doi: 10.1016/j.ijpe.2023.109058
[36]	Y. Xu, C. H. Liu, F. F. Wei, S. Y. Zhao, H. Y. Mao, The influence of government subsidies on remanufacturers' production decisions, considering product quality, customer purchase intention, and carbon emissions, J. Clean. Prod., 443 (2024), 141130. https://doi.org/10.1016/j.jclepro.2024.141130 doi: 10.1016/j.jclepro.2024.141130
[37]	G. P. Cachon, Supply chain coordination with contracts, HORMS, Elsevier, 2003, 227–339. https://doi.org/10.1016/S0927-0507(03)11006-7
[38]	E. Savku, G. W. Weber, Stochastic differential games for optimal investment problems in a Markov regime-switching jump-diffusion market, Ann. Oper. Res., 312 (2022), 1171–1196. https://doi.org/10.1007/s10479-020-03768-5 doi: 10.1007/s10479-020-03768-5
[39]	P. R. Kleindorfer, K. Singhal, L. N. V. Wassenhove, Sustainable operations management, Prod. Oper. Manag., 14 (2005), 482–492. https://doi.org/10.1111/j.1937-5956.2005.tb00235.x doi: 10.1111/j.1937-5956.2005.tb00235.x
[40]	A. Qiao, S. H. Choi, Y. C. Pan, Multi-party coordination in sustainable supply chain under consumer green awareness, Sci. Total Environ., 777 (2021), 146043. https://doi.org/10.1016/j.scitotenv.2021.146043 doi: 10.1016/j.scitotenv.2021.146043
[41]	X. L. Wan, D. Q. Yang, T. T. Wang, M. Deveci, Closed-loop supply chain decision considering information reliability and security: should the supply chain adopt federated learning decision support systems? Ann. Oper. Res., 349 (2025), 169–205. https://doi.org/10.1007/s10479-023-05477-1 doi: 10.1007/s10479-023-05477-1
[42]	J. C. Fan, D. B. Ni, X. Fang, Liability cost sharing, product quality choice, and coordination in two-echelon supply chains, Eur. J. Oper. Res., 284 (2020), 514–537. https://doi.org/10.1016/j.ejor.2020.01.003 doi: 10.1016/j.ejor.2020.01.003
[43]	L. G. Debo, L. B. Toktay, L. N. V. Wassenhove, Market segmentation and product technology selection for remanufacturable products, Manage. Sci., 51 (2005), 1193–1205. https://doi.org/10.1287/mnsc.1050.0369 doi: 10.1287/mnsc.1050.0369
[44]	X. Q. Xia, M. Y. Lu, W. Wang, Emission reduction and outsourcing remanufacturing: a comparative study under carbon trading, Expert Syst. Appl., 227 (2023), 120317. https://doi.org/10.1016/j.eswa.2023.120317 doi: 10.1016/j.eswa.2023.120317
[45]	Y. J. Xiao, W. J. Niu, L. M. Zhang, W. L. Xue, Store brand introduction in a dual-channel supply chain: the roles of quality differentiation and power structure, Omega, 116 (2023), 102802. https://doi.org/10.1016/j.omega.2022.102802 doi: 10.1016/j.omega.2022.102802
[46]	Y. W. Zhang, M. S. Han, K. Wang, Symmetric or asymmetric? Value-added service design for new and remanufactured products under competition, Int. J. Prod. Econ., 287 (2025), 109682. https://doi.org/10.1016/j.ijpe.2025.109682 doi: 10.1016/j.ijpe.2025.109682
[47]	Y. Liu, B. Shen, D. Ivanov, Product upgrade and advanced quality disclosure in a supply chain, Comput. Ind. Eng., 3 (2024), 110693. https://doi.org/10.1016/j.cie.2024.110693 doi: 10.1016/j.cie.2024.110693
[48]	W. Jung, J. Peck, M. Palmeira, K. Kim, An unintended consequence of product upgrades: how upgrades can make current consumers feel left behind, J. Mark. Res., 59 (2022), 1019–1039. https://doi.org/10.1177/00222437221078551 doi: 10.1177/00222437221078551
[49]	B. C. Giri, A. Chakraborty, T. Maiti, Pricing and return product collection decisions in a closed-loop supply chain with dual-channel in both forward and reverse logistics, J. Manuf. Syst., 42 (2017), 104–123. https://doi.org/10.1016/j.jmsy.2016.11.007 doi: 10.1016/j.jmsy.2016.11.007
[50]	W. J. Niu, X. Chao, L. Liu, L. M. Zhang, M. Luo, Financial support to a supplier for quality improvement in a dual-channel supply chain, Comput. Ind. Eng., 189 (2024), 109975. https://doi.org/10.1016/j.cie.2024.109975 doi: 10.1016/j.cie.2024.109975
[51]	Y. He, Q. Y. Xu, B. Xu, P. K. Wu, Supply chain coordination in quality improvement with reference effects, J. Oper. Res. Soc., 67 (2016), 1158–1168. https://doi.org/10.1057/jors.2016.10 doi: 10.1057/jors.2016.10

jimo-22-02-035-s001.pdf

Reader Comments

Your name:*

Email:*
© 2026 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)