Energy Efficiency Contracting in Supply Chains.

There is some evidence that manufacturers refrain from investing in energy efficiency (EE) measures which improve their production process and reduce operational costs as a response to retailer's high bargaining power and the possibility of their using it to further push the prices down and seueez manufacturer's profit margin. Additionally, the uncertainty associated with new and environmental friendly EE technologies further discourages the manufacturers to adopt EE technologies. We study these problems by considering a two tier supply chain including a single manufacturer and a retailer and analyse the effect of retailer's relative bargaining power and technology uncertainty on adoption of EE technologies by the upstream manufacturer. We compare multiple contracting arrangement practiced in industry to aleviate the aformentioned problems including price commitment by the retailer and shared investment contracts, and charachterise optimal contracts with respect to different criteria, including supply chain profits and the level of EE investments. We find that shared investment contracts perform better than price commitment contracts based on the EE the level of investment and channel profit criteria, while price commitment contracts yield higher profit for the manufacturer rather than having no EE contract when retailer's bargaining power is relatively high. Furthermore, when the technology uncertainty is high, the retailer's profit is higher when there is no EE contract. [ABSTRACT FROM AUTHOR]