Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

Abstract: This study delves into a dynamic Stackelberg game comprised of a manufacturer and a retailer, operating in an environment with fluctuating demand and price-dependent consumer behavior. The multi-period optimization challenges the manufacturer to strategically set wholesale and buyback prices, while the retailer determines the retail price and order quantities within a single contract. In this dynamic framework, the players operate under the constraints of a cap-and-trade policy, with limited knowledge of demand distributions, characterized only by mean and standard deviation parameters. To address this inherent uncertainty, we employ a distributionally robust approach. Additionally, we explore the enduring effects of historical decisions on present-day demand, reflecting a memory-like market behavior. Through numerical examples, we illuminate the influence of buyback contracts and cap-and-trade policies on decision-making processes within this setting.

Keywords: Cap-and-Trade Policy; Multi-Period Stackelberg Game; Distributional-Robust Demand; Single Contract; Buyback Contract; Sustainability

JEL-codes: C61; C62; C63; C72; C73; D81; Q52

Language: English

28 pages, February 20, 2024

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