Manufacturers’ horizontal green R&D cooperation in a supply chain: effects of technological spillover

Abstract

Cooperation among competing green technology manufacturers (i.e. coopetition) is becoming increasingly popular. Although such cooperation can benefit manufacturers, the findings concerning its effect on other supply chain members remain ambiguous. This study builds a supply chain model comprising two competing manufacturers and one common retailer to demonstrate how manufacturer cooperation harms retailers, society, and the environment without technological spillover. However, adding technological spillover makes Pareto improvements possible. Our results show that technological spillover has two concurrent effects on manufacturer cooperation in green technology: a cost-saving effect, which prompts manufacturers to invest more in green technology, and a free-rider effect, which leads manufacturers to reduce investment. When the cost-saving effect outweighs the free-rider effect, manufacturers increase their green technology investments. Consequently, retailer profits and social welfare increase, and emissions per unit of output decrease. We also find that retailers are more likely to benefit from manufacturer cooperation when they have stronger market power.