Who Bears Green Costs in Competitive Supply Chains

Green investment is increasingly important in sustainable supply chain management, but it remains unclear whether the associated costs should be borne by manufacturers or retailers in competitive markets. To address this issue, this study develops a two-tier green supply chain model with one manufacturer and two competing retailers, where demand depends on retail prices and product greenness. A Stackelberg game framework is used to compare two green cost-bearing structures: manufacturer-borne green cost (MBG) and retailer-borne green cost (RBG). The results show that neither mode is universally superior. When green investment costs are low, both modes lead to the maximum feasible green level. When costs are higher, their relative performance depends on product substitutability and green cost sensitivity. Stronger substitutability increases the strategic value of greenness and may favor RBG, whereas higher green cost sensitivity tends to favor MBG because manufacturers can recover green investment through wholesale pricing. This study contributes by clarifying how green cost allocation affects pricing, demand, and profit distribution under retail competition, and it provides guidance for designing green investment arrangements in practice.