Does the dynamic goodwill of supply chain players impact the supply chain efficiency: strategic decision, competition, and contract choice?

Abstract This paper studies the interaction between a green manufacturer and two retailers that compete based on free value‐added services (VAS) and advertising, and retail price. This study features the dynamic nature of market demand to capture the complexity of competitive green supply chains. Here, the manufacturer puts effort into producing environmentally friendly products, while retailers promote the greenness of products by advertising and providing free VAS. Furthermore, market demand depends on selling prices, the product's greenness, and the goodwill of all supply chain stakeholders. Using a game‐theoretic approach, we determine the optimal retail pricing of products, green level, and VAS/advertising strategy. Further, we explore coordination mechanisms to improve supply chain performance. Our findings suggest that all supply chain members benefit more from a two‐way cost‐sharing contract than others. Finally, we conduct a comparative analysis to determine the best contract mechanism for strategic decisions for supply chain members.