Essays on Operation Strategies Under Environmental Regulations

Abstract

This thesis consists of three parts. In the first part, we investigate competing retailers' sourcing strategy choices between global sourcing and local sourcing under the EU's Carbon Border Adjustment Mechanism (CBAM), which aims to protect European industries from unfair competition from countries with lower environmental standards. When retailers source globally from non-EU manufacturers that are subject to cap-and-trade policy, there would be interactions between the CBAM and cap-and-trade policy. In practice, we observe that many retailers in the EU are transferring their sourcing strategy from global to local. Therefore, our research questions are: How are the supply chain parties impacted by the CBAM fee under the CBAM and the number of carbon emission permits under the cap-and-trade policy? Moreover, for the competitive retailers, is shifting from global sourcing to local sourcing a better choice? Based on a game theoretic model, we find that the augmentation of the carbon emission permits allotted to the non-EU manufacturer may not necessarily entail an increase in the non-EU manufacturer's profit and a lose-lose situation for the global sourcing retailer and the non-EU manufacturer may arise under certain conditions. We derive two retailers' sourcing strategies in equilibrium and find that two symmetric retailers may have asymmetric sourcing strategies.

The second part is motivated by the disruption of global supply chains caused by the waste bans on scrap materials. Many countries have broadened waste bans to encompass nearly all recyclables, creating supply disruptions for local brands with overseas procurement (BOP). These brands, traditionally reliant on procuring scrap materials overseas, are compelled to seek local alternative suppliers, even if the materials are higher priced and the local supplier operates a self-branded business. In this part, we examine the strategic sourcing decisions of BOP in relation to local suppliers with self-branded end products (LSP). We focus on the BOP’s incentives toward such a “co-opetitive” relationship and the LSP’s willingness to sell scrap materials to the BOP. We find that having two suppliers may induce a material price war but the material price will not become too low when the probability of overseas supply disruption is high. Interestingly, we find that the BOP will allocate a low proportion of material purchasing orders to the LSP when it faces a high probability of overseas supply disruption. In contrast, the LSP has the incentive to sell scrap materials to the BOP when the probability of overseas supply disruption is in a moderate range. If the BOP’s material quality requirement is high, or the probability of overseas supply disruption is low, the LSP might even have a profit loss when selling materials to the BOP.

In the third part, we study EV companies' service-sharing decisions under a weighted average objective of profit and market share. This work is motivated by the observations in the EV industry that market share is included by EV companies (e.g., Tesla, XPeng, and Li Auto) as an important part of their objective. It's not clear whether the market share objective would hurt the companies' profitability. We are therefore interested in the EV companies' decision rationality, especially when we observe that they are selling the "EV product + charging service", and some of them share their superior charging networks with their rivals. Our question is whether these efforts/decisions for market share are really beneficial. We interestingly find that the company making decisions under a weighted average objective of market share and profitability could indeed obtain a higher profit than that under a profit maximization objective. Sharing superior charging networks promotes competing EV companies' cooperation and diversifies their competition when the consumers can switch between EV product purchasing and charging service competition. This not only benefits the companies but also the social welfare, so an all-win situation can be achieved.

Date of Award	12 Sept 2023
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Baozhuang Niu (External Supervisor) & Biying SHOU (Supervisor)