As the circular economy advances, green process innovation for recycling (GPIR) has become a promising pathway for emission reduction under cap-and-trade regulations. Unlike green process innovation for manufacturing (GPIM), which focuses on emission reduction during manufacturing stages, GPIR emphasizes lowering carbon emissions and production costs by improving product recycling efficiency and greenness. Given the substantial challenges of innovation, many upstream and downstream firms collaborate on emission reduction initiatives in practice. However, the interaction between upstream firms’ GPIR and downstream firms’ GPIM comes with the challenge of designing collaborative strategies. We analyze two typical cooperative strategies through a game-theoretical approach. We consider a manufacturer engages in GPIM and chooses between a non-cooperative strategy or collaborating with a supplier engaged in product recycling to conduct GPIR, either through cost-sharing or R&D joint-venture. Our main results are as follows. First, while the R&D joint-venture can, under certain conditions, enhance the overall performance of the supply chain, the manufacturer does not favor the R&D joint-venture. The supplier’s cash rebate policy can incentivize the manufacturer to choose the R&D joint-venture. Additionally, higher carbon trading price will drive them to switch from an R&D joint-venture to a cost-sharing strategy. Second, there is a complementary effect between GPIR and GPIM. As a result, the manufacturer’s higher cost-sharing rate does not necessarily prompt the supplier to lower wholesale prices. Third, the demand-enhancing effect from increased green innovation outweighs the demand-reducing effect from higher wholesale prices, allowing the manufacturer to expand sales even with high sourcing costs.

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Dr. Zhifeng Qian