# Environmental Collaboration under Various Contracts in the O2O Closed-Loop Supply Chain

Authors: Yang Bai; Xueying Meng
Journal: Discrete Dynamics in Nature and Society
 (2022)

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## Abstract

This study considers the dynamic pricing and green advertising incentive decisions in the O2O closed-loop supply chain. Through green advertising efforts, the manufacturer and the retailer push up the consumers’ environmental consciousness and the return rate of the end-of-use products. Based on the manufacture directing Stackelberg game theory, this research looks into three different green advertising decisions (noncooperative, unilateral cooperative, and bilateral cooperative) under wholesale price contract, revenue-sharing contract, and financial support contract in the O2O CLSC. The results show that the bilateral cooperative incentive strategy always makes both the manufacturer and the retailer invest more in green advertising efforts and increase profits. Without affecting sales, implementing the bilateral cooperative incentive mechanism under the financial support contract is the best strategy to mitigate channel conflict, promote Pareto improvement, and ultimately achieve sustainable development goals.


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## Body

## 1. Introduction

As the widely used advanced technology for the past decades, the product’s upgrading and generation-changing dramatically increased. Meanwhile, the frequency of replacement products becomes faster and faster. According to various researchers, solid waste will increase to 2.2 billion tons by 2025, up from 1.3 billion tons in 2017, and the annual cost will grow to $375.5 billion in 2025, up from $205.4 billion in 2017 [1]. Due to the resource shortage and environmental degradation, more and more business enterprises and academia recognize the importance of sustainable development and turn their attention to remanufacturing and green products. Meanwhile, plenty of new regulations and laws have also been implemented in many countries worldwide [2, 3]. Through reverse logistics remanufacturing of used products in the closed-loop supply chain (CLSC), companies such as Lenovo, Dell Computer, and Ford save raw materials, effectively allocate existing resources and material recycling, and ultimately achieve the goals of profit maximization and sustainable development. The CLSC is a closed-loop system that combines both forward and reverse logistics to achieve the challenge of environmental, economic, and social performance [4].There are two typical CLSC incentive strategies in extant research and practices: decentralized CLSC and centralized CLSC. The decentralized CLSC has the same environmental and economic performance effect under incentive strategies as the centralized CLSC [5]. Manufacturers in a decentralized CLSC system may use three typical reverse logistics to collect used/end-of-life products: remanufacturers directly collecting from consumers, retailers collecting from consumers, or third parties collecting from consumers [6].Meanwhile, online shopping has significantly changed consumers’ purchase patterns with the rapid growth of technologies. Many manufacturers (or suppliers) such as IBM, P&G, McDonald’s, and HP are introducing mobile orders to redesign their supply chain channels [7, 8]. As the New York Times reported, more than half of the top manufacturers (or suppliers) began to use online technology to redesign their supply chain channels and sell directly to consumers through the Internet and mobile device. More and more business companies realized that online technologies might reduce margin cost, expand consumer market, and ultimately promote whole channel sales and increase profits [9].When the manufacturers (or suppliers) open an O2O (offline to online) supply chain channel, they may attract the customers who prefer buying the products in stores through the traditional channel and also capture the young customers who prefer shopping online or use mobile App through the direct online channel. However, the benefit from expanding market segments also leads to a disadvantage of channel conflict. When the manufacturers (or suppliers) open an online channel, they would take away some market share from the traditional channel and compete with retailers. Retailers have no choice except to reduce the price to attract consumers. Although this competition may lead to conflict, they may not be worse off for the retailers, and it is unwise to boycott the online channel and drive customers to buy elsewhere.For the manufacturers, as the leader, how to make the O2O supply chain a Pareto improving and mitigating the channel conflict and how to coordinate with the retailers and get to a win-win situation are important questions. Numerous mechanisms have been proposed. Yan and Ghose [10], Ding, Guo, and Liu [11], and Yan and Pei [12] proposed information sharing coordinative mechanisms to reduce channel conflict. Wang, Jiang, and Shen [13] and Xu, Dan, and Zhang [14] addressed the revenue-sharing model to alleviate channel conflict. In the context of supply chain management and marketing, advertising decisions also play essential roles in today’s business world. According to the advertising cooperative strategy, manufacturers mitigate channel conflict and ultimately promote win-win situations with retailers.This research considers a new O2O CLSC with Stackelberg game, in which there are two marketing channels. One is a traditional channel, consisting of a manufacturer, playerM, and its traditional retailer, player R. The other is a manufacturer’s newly added online channel. The manufacturer sells its products through these two independent and competitive channels; the retailer collects used/end-of-life products from consumers in a reverse logistic channel. The participating members in the O2O CLSC invest more effort in green advertising activities through television programs, magazine articles, and environmental brochures to improve consumers’ environmental consciousness. Consumers have high environmental consciousness that translates into a more considerable return rate of their goods once they reach an end-of-life/use stage.Meanwhile, numerous studies have shown how various coordination contracts, such as wholesale price, revenue-sharing, cost-sharing, and financial assistance contracts, can be effectively and widely used to help managers make more cooperative decisions, ultimately leading to a Pareto improvement [15–18]. Based on these, this study develops three different contracts commonly used in practice: wholesale price contract, revenue-sharing contract, and financial support contract. This work’s aims are about the role played by the manufacturer directing O2O CLSC in affecting green advertising and pricing decisions under different green advertising cost-sharing decisions (noncooperative, unilateral cooperative, and bilateral cooperative) and contracts. Without affecting sales, implementing the bilateral cooperative incentive mechanism under the financial support contract is the best strategy to mitigate channel conflict, promote Pareto improvement, and ultimately achieve sustainable development goals.This paper’s main contribution is as follows: will fill up the stream of the O2O closed-loop supply chain pricing literature by including dynamic advertising decisions of the manufacturers directing traditional retailer channels and online channels together. This paper addresses some main research questions:(1)
What optimal decisions are on the O2O closed-loop supply chain’s pricing and advertising policies?(2)
How each contract affects the O2O closed-loop supply chain members’ decisions on pricing and advertising policies?(3)
How does advertising cooperative promotion strategy impact the whole O2O closed-loop supply chain?(4)
Does cooperative advertising strategy improve channel profits and reduce conflict?The rest of this paper is organized as follows. Section2 surveys the pertinent literature, and Section 3 presents the O2O closed-loop supply chain models. Section 4 develops the respective models and derives the optimal pricing and advertising decisions under three different contracts (wholesale price contract, revenue-sharing contract, and financial support contract) in the O2O closed-loop supply chain. Section 5 provides numerical examples to identify the optimal environmental, economic, and social performance. Finally, the conclusions and future research are summarized in Section 6.


## 2. Literature Review

This paper considers pricing decisions and advertising coordination in the O2O closed-loop supply chain. In particular, this study looks into three different contracts widely used in supply chain practice: wholesale price contract, revenue-sharing contract, and financial support contract. Therefore, the previous literature relevant to this study can be classified into several topics: dynamic pricing and advertising incentive decisions, the O2O model, and the closed-loop supply chain. The comparison between previous research and the current study is shown in Table1.Table 1
Comparison of previous models and the current study.
AuthorsChannel structureContract typeAdvertising strategyChannel statusCLSCO2OO2O-CLSCWPRsFSNCUCBCDSSSYoo et al. [19]✓✓✓Kong et al. [20]✓✓✓Li et al. [21]✓✓✓✓✓De giovanni [22]✓✓✓✓✓Yan and Zhi [18]✓✓✓✓✓Pei et al. [23]✓✓✓This study✓✓✓✓✓✓✓✓NC, UC, and BC represent noncooperative strategy, unilateral cooperative strategy, and bilateral cooperative strategy, respectively, and DS and SS represent dynamic status and steady status.


### 2.1. Dynamic Pricing and Advertising Incentive Decisions

Many researchers study dynamic pricing and advertising decisions in the supply chain area. For example, Nerlove and Arrow [24] first developed the time-varying advertising decision model. Chintagunta and Jain [25] compared uncoordinated time-dependent advertising strategies in manufacturing and a retailer supply chain. They found that advertising strategy is always better than nonadvertising strategy. Jorgensen, Taboubi, and Zaccour [26] illustrated one-manufacturer and one-retailer Stackelberg game. They showed that when the manufacturer takes a Stackelberg leader’s role, all channel members can benefit under the co-op advertising program, ultimately achieving Pareto improvement. Jorgensen, Sigue, and Zaccour [27] used more sophisticated advertising incentive strategies than uncoordinated and coordinated time-dependent advertising incentive strategies in manufacturing directing a retail supply chain. They found that a cooperative advertising promotion strategy can always help the channel members to achieve Pareto improvement in the supply chain. Jorgensen, Sigue, and Zaccour [28] investigated the special case in which the retailer’s advertising promotional activities have a negative impact on the brand image (or goodwill). This paper showed that the cooperative advertising strategy is also feasible under the special case. He, Prasad, and Sethi [29] added the random demand in the advertising strategy and considered local advertising only. Zhang, Gou, and Liang [30] considered the consumer reference price. De Giovanni and Roselli [31] found that a cooperative advertising strategy could mitigate the conflicts under a revenue-sharing contract and always lead to a Pareto improvement.The above studies are based on one-manufacturer and one-retailer differential game; it will be more complicated if there is more than one competitive member. Kim and Staelin [32] compared uncoordinated and coordinated advertising strategies in the two manufacturers and two retailers’ supply chains, in which the manufacturers are leaders and the retailers are followers. Karray and Zaccour [33] studied the two manufacturers and retailers’ marketing channels. They found that coordinated advertising strategies only increase retailers’ profits when the store substitution rate is not too high. He, Krishnamoorthy, and Prasad [34] considered the retailer’s competitive marketing channel, in which the manufacturer supports part of his retailer’s advertising cost and is competitive with another retailer. He, Huang, and Li studied the inventory and pricing decisions in an O2O supply chain with deteriorating products [35]. The main message of this study is that the retailer can benefit from the cooperative advertising strategy and achieve Pareto improvement.The above literature reviews and surveys the existing research on pricing and advertising strategies. However, the literature above had limited focus on dynamic pricing and cooperative green advertising strategies in the O2O closed-loop supply chain. Hence, this work introduces the dynamic pricing and green advertising decisions in the O2O closed-loop supply chain. This work aims to look into three different contracts widely used in supply chain practice: wholesale price contract, revenue-sharing contract, and financial support contract.


### 2.2. The O2O Model

With the rapid development of online technology, many manufacturers are involved in introducing the O2O e-commerce model to redesign their supply chain channels. They showed that the manufacturer is more profitable when it opens the O2O channel. Tsay and Agrawal [36] illustrated that the O2O channel could make both parties (manufacturer and retailer) better off. Kumar and Ruan [37] showed that product web compatibility plays a significant role in online sales in the manufacturer directing the O2O channel. Cao, Vonderembse, and Zhang [38] demonstrated the revenue-sharing contract in the O2O supply chain. They found that the revenue-sharing contract can help all the O2O channel members to achieve Pareto improvement. De Giovanni [39] illustrated that all channel members could achieve a win-win situation in the O2O competition through cooperative strategy and players’ information sharing. Li, Li, and Cao [21] considered three different static advertising contracts in the O2O supply chain. Kong et al. [20] considered the pricing and service decision in an O2O CLSC. It results that the optimal retail price and service level under centralization are positively related. However, they did not study dynamic pricing and green advertising decisions. Yan, Pei, and Ghose [18] demonstrated how combining the manufacturer’s financial support in reward points to the retailer with the profit-sharing coordinates the O2O distributions effectively and improves supply chain performance. Yan and Pei [40] demonstrated different return and coordination policies in the O2O supply chain. They showed that the differential of return coordination policies would increase both the manufacturer’s and the retailer’s profits. Zhong et al. [41] studied the revenue-sharing contract in an e-commerce logistics service supply chain. They found that a revenue-sharing contract could achieve a win-win situation and increase all channel members’ profits. Pei et al. [23] studied a different type of rebate and channel coordination mechanism in the O2O model. They found that the combination mechanism is significantly advantageous in mitigating channel competition and increasing profits, ultimately achieving Pareto improvement.All previous research rarely investigated the effect of various contracts on dynamic pricing and green advertising decisions in the O2O CLSC. In addition, most of them did not consider the importance of the O2O channel in the closed-loop supply chain at the same time. Hence, the dynamic pricing and green advertising decisions in the dynamic O2O CLSC will be considered in this study.


### 2.3. Closed-Loop Supply Chain

The CLSC is a closed-loop system that integrates forward and reverse activities, aiming to manage the backward flows from the downstream to the upstream suppliers and pursue the challenge of environmental, economic, and social performance [4]. As in the CLSC, the incentive strategy plays a significant role in reverse logistics. Shulman, Coughlan, and Savaskan [42] highlighted that a centralized supply chain always performs better than a decentralized supply chain. However, appropriate contract and incentive mechanisms may be achieved in the decentralized CLSC. In addition, they provide a retailer competition game and demonstrate that the incentive strategy leads to improved performance. Hong and Yeh [43] applied a retailer collection model and illustrated that the retailer collection is always better off for success of CLSC. De Giovanni and Zaccour [44] illustrated that the single cost-sharing incentive mechanism is not helpful to lead to coordination. De Giovanni [45] provided a green advertising incentive model in the decentralized CLSC and showed that the retailer incentive mechanism under the revenue-sharing contract could lead to higher environmental and economic performance in the decentralized CLSC. Lu, Qi, and Liu [46] illustrated that the incentive strategy could help the decentralized CLSC achieve the same effects on the economic and environmental performance of the centralized CLSC. Although the hybrid contract could achieve a Pareto optimal solution, fundamental planning is also needed.The research above is mainly based on one manufacturer and one retailer or one manufacturer and two retailers, and the coexistence of offline and online channels at the same time was not considered. Moreover, the green advertising strategies under different contracts were not compared. Therefore, this research aims to study three different green advertising decisions (noncooperative, unilateral cooperative, and bilateral cooperative) under three different contracts (wholesale price contract, revenue-sharing contract, and financial support contract) in the dynamic O2O CLSC.


## 2.1. Dynamic Pricing and Advertising Incentive Decisions

Many researchers study dynamic pricing and advertising decisions in the supply chain area. For example, Nerlove and Arrow [24] first developed the time-varying advertising decision model. Chintagunta and Jain [25] compared uncoordinated time-dependent advertising strategies in manufacturing and a retailer supply chain. They found that advertising strategy is always better than nonadvertising strategy. Jorgensen, Taboubi, and Zaccour [26] illustrated one-manufacturer and one-retailer Stackelberg game. They showed that when the manufacturer takes a Stackelberg leader’s role, all channel members can benefit under the co-op advertising program, ultimately achieving Pareto improvement. Jorgensen, Sigue, and Zaccour [27] used more sophisticated advertising incentive strategies than uncoordinated and coordinated time-dependent advertising incentive strategies in manufacturing directing a retail supply chain. They found that a cooperative advertising promotion strategy can always help the channel members to achieve Pareto improvement in the supply chain. Jorgensen, Sigue, and Zaccour [28] investigated the special case in which the retailer’s advertising promotional activities have a negative impact on the brand image (or goodwill). This paper showed that the cooperative advertising strategy is also feasible under the special case. He, Prasad, and Sethi [29] added the random demand in the advertising strategy and considered local advertising only. Zhang, Gou, and Liang [30] considered the consumer reference price. De Giovanni and Roselli [31] found that a cooperative advertising strategy could mitigate the conflicts under a revenue-sharing contract and always lead to a Pareto improvement.The above studies are based on one-manufacturer and one-retailer differential game; it will be more complicated if there is more than one competitive member. Kim and Staelin [32] compared uncoordinated and coordinated advertising strategies in the two manufacturers and two retailers’ supply chains, in which the manufacturers are leaders and the retailers are followers. Karray and Zaccour [33] studied the two manufacturers and retailers’ marketing channels. They found that coordinated advertising strategies only increase retailers’ profits when the store substitution rate is not too high. He, Krishnamoorthy, and Prasad [34] considered the retailer’s competitive marketing channel, in which the manufacturer supports part of his retailer’s advertising cost and is competitive with another retailer. He, Huang, and Li studied the inventory and pricing decisions in an O2O supply chain with deteriorating products [35]. The main message of this study is that the retailer can benefit from the cooperative advertising strategy and achieve Pareto improvement.The above literature reviews and surveys the existing research on pricing and advertising strategies. However, the literature above had limited focus on dynamic pricing and cooperative green advertising strategies in the O2O closed-loop supply chain. Hence, this work introduces the dynamic pricing and green advertising decisions in the O2O closed-loop supply chain. This work aims to look into three different contracts widely used in supply chain practice: wholesale price contract, revenue-sharing contract, and financial support contract.


## 2.2. The O2O Model

With the rapid development of online technology, many manufacturers are involved in introducing the O2O e-commerce model to redesign their supply chain channels. They showed that the manufacturer is more profitable when it opens the O2O channel. Tsay and Agrawal [36] illustrated that the O2O channel could make both parties (manufacturer and retailer) better off. Kumar and Ruan [37] showed that product web compatibility plays a significant role in online sales in the manufacturer directing the O2O channel. Cao, Vonderembse, and Zhang [38] demonstrated the revenue-sharing contract in the O2O supply chain. They found that the revenue-sharing contract can help all the O2O channel members to achieve Pareto improvement. De Giovanni [39] illustrated that all channel members could achieve a win-win situation in the O2O competition through cooperative strategy and players’ information sharing. Li, Li, and Cao [21] considered three different static advertising contracts in the O2O supply chain. Kong et al. [20] considered the pricing and service decision in an O2O CLSC. It results that the optimal retail price and service level under centralization are positively related. However, they did not study dynamic pricing and green advertising decisions. Yan, Pei, and Ghose [18] demonstrated how combining the manufacturer’s financial support in reward points to the retailer with the profit-sharing coordinates the O2O distributions effectively and improves supply chain performance. Yan and Pei [40] demonstrated different return and coordination policies in the O2O supply chain. They showed that the differential of return coordination policies would increase both the manufacturer’s and the retailer’s profits. Zhong et al. [41] studied the revenue-sharing contract in an e-commerce logistics service supply chain. They found that a revenue-sharing contract could achieve a win-win situation and increase all channel members’ profits. Pei et al. [23] studied a different type of rebate and channel coordination mechanism in the O2O model. They found that the combination mechanism is significantly advantageous in mitigating channel competition and increasing profits, ultimately achieving Pareto improvement.All previous research rarely investigated the effect of various contracts on dynamic pricing and green advertising decisions in the O2O CLSC. In addition, most of them did not consider the importance of the O2O channel in the closed-loop supply chain at the same time. Hence, the dynamic pricing and green advertising decisions in the dynamic O2O CLSC will be considered in this study.


## 2.3. Closed-Loop Supply Chain

The CLSC is a closed-loop system that integrates forward and reverse activities, aiming to manage the backward flows from the downstream to the upstream suppliers and pursue the challenge of environmental, economic, and social performance [4]. As in the CLSC, the incentive strategy plays a significant role in reverse logistics. Shulman, Coughlan, and Savaskan [42] highlighted that a centralized supply chain always performs better than a decentralized supply chain. However, appropriate contract and incentive mechanisms may be achieved in the decentralized CLSC. In addition, they provide a retailer competition game and demonstrate that the incentive strategy leads to improved performance. Hong and Yeh [43] applied a retailer collection model and illustrated that the retailer collection is always better off for success of CLSC. De Giovanni and Zaccour [44] illustrated that the single cost-sharing incentive mechanism is not helpful to lead to coordination. De Giovanni [45] provided a green advertising incentive model in the decentralized CLSC and showed that the retailer incentive mechanism under the revenue-sharing contract could lead to higher environmental and economic performance in the decentralized CLSC. Lu, Qi, and Liu [46] illustrated that the incentive strategy could help the decentralized CLSC achieve the same effects on the economic and environmental performance of the centralized CLSC. Although the hybrid contract could achieve a Pareto optimal solution, fundamental planning is also needed.The research above is mainly based on one manufacturer and one retailer or one manufacturer and two retailers, and the coexistence of offline and online channels at the same time was not considered. Moreover, the green advertising strategies under different contracts were not compared. Therefore, this research aims to study three different green advertising decisions (noncooperative, unilateral cooperative, and bilateral cooperative) under three different contracts (wholesale price contract, revenue-sharing contract, and financial support contract) in the dynamic O2O CLSC.


## 3. Methodology

This study considers noncooperative, unilateral cooperative, and bilateral cooperative green advertising strategies under three different contracts: wholesale price contract, revenue-sharing contract, and financial support contract in the O2O closed-loop supply chain (see Table2).Table 2
Green advertising strategies in the O2O CLSC.
ContractStrategiesWholesale price (WP) contractNoncooperative strategyUnilateral cooperative strategyBilateral cooperative strategyRevenue-sharing (RS) contractNoncooperative strategyUnilateral cooperative strategyBilateral cooperative strategyFinancial support (FS) contractNoncooperative strategyUnilateral cooperative strategyBilateral cooperative strategyThe dynamic consumer’s environmental consciousness in a reverse logistic channel from consumers to the retailer will be denoted byG(t). In addition, the manufacturer, player M, decides the online green advertising efforts a1, as well as the participation rate, g1, as an incentive of the retailer’s green advertising expenditure. The retailer, player R, decides the traditional green advertising efforts a2, as well as the participation rate, g2, as an incentive of the manufacturer’s green advertising expenditure. All notations used in this research are summarized in Table 3. Green advertising could increase peoples’ awareness about environmental issues, encouraging more customers to return their used/end-of-life products.Table 3
Summarized notations.
NotationsInterpretationM, RManufacturer, retailertTimeμ1Manufacturer’s green advertising effectivenessμ2Retailer’s green advertising effectivenessδDecay rateG˙tThe stock of consumers’ environmental consciousness§GtReturn rate△Average return’s residual valueωWholesale pricevConsumption valueφConsumer’s return willingness consciousnessθConsumer’s acceptance indexγAdjusting parameter of consumers’ environmental consciousnessrDiscount factorρAdjusting parameter of returnεRevenue-sharing parametersEffect of monetary reward pointsDecision variablesp1tOnline pricep2tOffline pricea1tManufacturer’s green advertising effortsa2tRetailer’s green advertising effortsg1Manufacturer’s participation rateg2Retailer’s participation rateD1Online demandD2Offline demandAssumption.
Besides, this research makes the following assumptions [19, 44]:(1)
The manufacturers control reverse logistics, and retailers collect the used/end-of-life products from consumers.(2)
Assume that there is no difference between a manufactured product and a remanufactured product.(3)
Manufacturing a new product from a used product is less costly than using raw material.(4)
To ensure profitable remanufacturing, it is assumed thatφ>ρ△>θφ>0, and therefore all of the players will be economical [47].
The participating members in the O2O closed-loop supply chain invest more effort in green advertising activities through television programs, magazine articles, and environmental brochures to improve consumers’ environmental consciousness. Consumers have high environmental consciousness that translates into a larger return rate of their goods once they reach an end-of-life/use stage. For mathematical tractability, as in the work of De Giovanni and Roselli [31], the green advertising costs are assumed to be convex and increasing that takes the quadratic form:(1)CMa1t=12a12t,CRa2t=12a22t.
In order to capture the impact of green advertising investments on the consumer environment, following the advertising model of De Giovanni [44], which is an extended and evolved version of Nerlove and Arrow [24], the following dynamic equation describes how consumer environmental consciousness evolves as a result of green advertising activities:(2)G˙t=μ1a1t+μ2a2t−δGt,G0=G0≥0.
Parameterμ1 is the effect of the manufacturer’s green advertising on this stock, μ2 is the effect of the retailer’s green advertising on returns, and δ is the decay rate of the natural reduction of consumers’ environmental consciousness.


### 3.1. O2O CLSC Model

In the O2O CLSC, this study supposes that there are two marketing channels. One is a traditional channel, consisting of a manufacturer, playerM, and its traditional retailer, player R. The other is a manufacturer’s newly added online channel. The manufacturer sells its products through these two independent and competitive channels; the retailer collects used/end-of-life products from consumers in a reverse logistic channel (see Figure 1).Figure 1
The O2O CLSC distribution diagram.The manufacturer, playerM, decides price p1, for the online channel, as well as the wholesale price ω for the traditional retailer. The consumer’s consumption value will be denoted by v. In other words, the notation v means the consumer’s willingness to pay. It assumes that the product value v, for analytic simplicity, is uniformly distributed from 0 to 1, with a density of 1. Additionally, because all channel members sell both the manufactured and the remanufactured products simultaneously, the consumer’s consumption value is less than 1. This study supposes that the return rate positively correlates with consumers’ willingness to pay. §Gt=φGt is denoted to be the dynamic return rate of used/end-of-life products in a reverse logistic channel from consumers to retailers. As § is upper bound to 1. When §=0, consumers dispersed the used/end-of-life products in the environment. However, all the consumers returned the used/end-of-life products to the store when §=1. See numerical analysis in Table 5 for details. Besides, this research assumes that the return rate positively correlates with consumers’ willingness to pay. Therefore, the consumer’s consumption value at any instant of time can be extended as φGtv. The parameter 0<φ≤1 is the consumer’s return willingness consciousness on current willingness to pay. Chiang, Chhajed, and Hess (2003) showed that most products are less acceptable from web-based channel than the traditional channel. That is because if consumers buy the products from an online store, typically, they should have to wait several days for delivery and will be charged a shipping and handling fee. Second, it is difficult to eliminate the production uncertainty only after viewing the web page’s photographs. Even the customer can refund the product, but he has to pay the delivery fee, and the refund is typically only partial, reducing the customer’s consumption value [48]. Third, like Yan, Cao, and Pei [8] addressed, the online seller may be located in another city; therefore, the after-sale service questions arise. Hence, if consumers buy the products from the online channel, the consumer’s consumption value will be denoted by θφGtv.0<θ<1 is the consumer’s acceptance index (for details, see Table 4).Table 4
The product acceptance index for the online channel.
CategoryBookToothpasteFood itemsShoesAcceptable0.9040.8860.7840.769Note: all of the above data are obtained from the survey of Kacen, Hess, and Chiang [48].If consumers buy the products from the offline channel, the consumer’s surplus would beφGtv−p2≥0. Consumers’ surplus satisfies θφGtv−p1≥0, and consumers would consider buying the products from the online channel. If the consumer’s marginal valuation v2=p2/φGt, there is indifference to buying from the offline channel or not. Similarly, if the consumer’s marginal valuation v1=p1/φθGt, there is indifference to buying from the online channel or not. In the O2O CLSC, consumers can buy the products from either offline or online channels. Therefore, before the consumers buy the products, they will compare the surplus between the online channel and the offline channel and determine from which channel to buy the products. If φGtv−p2≥θφGtv−p1, then consumers would prefer to buy the products from the offline channel. If φGtv−p2≤θφGtv−p1, then the consumers would prefer the online channel to buy the products. If the consumer’s marginal valuation v12=p2−p1/φ1−θGt, there is indifference to buying the products from the offline or online channels. Using a model structure similar to that of Chiang, Chhajed, and Hess [7], in the case where v1≤v2, v1≤v2≤v12. Therefore, when the consumers’ willingness to pay is in the interval v1,v12, they would prefer to buy from the online channel, and when the consumers’ willingness to pay is in the interval v12,v1, they would prefer to buy from the offline channel. The consumer’s willingness to pay is in 0,v1; no one will buy the products from the O2O channel. When the consumers’ willingness to pay is in the interval v2,v1, they would prefer to buy from the offline channel. Using a model structure similar to that of Chiang et al. [7], the demand functions of online channels and offline channels can be denoted as d1 and d2, respectively, as follows:(3)d1t=θp2t−p1tφθ1−θGt,ifp2t≥p1tθ,0,otherwise,d2t=1−p2t−p1tφ1−θGt,ifp2t≥p1tθ,φGt−p2t,otherwise,(4)Dt=dp1t,p2tγGt.This research supposes that the O2O final expected demands are determined by a separable multiplicative function of green adverting dynamic goodwillγGt, the online channel price, the offline price, and the consumer’s return willingness [16, 49].Therefore, the demand functions of online channels and offline channels can be rewritten as(5)D1t=θp2t−p1tφθ1−θGtγGt,D2t=1−p2t−p1tφ1−θGtγGt,where γ is the adjusting parameter, and it satisfies 0<γ<1. This study described the residual value, Δ>0, as the per-return benefit that the manufacturer gains from remanufacturing rather than manufacturing the new products. This would seem to suggest that manufacturing a new product from a used product is less costly than using raw material. Therefore, the manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be extended as (6)JM=Max∫0∞e−rtp1t+△ρGtD1t+ωt+△ρGtD2t−(1−g2t)2a12t−g1t2a22tdt,and the retailer’s objective function is(7)JR=Max∫0∞e−rtp2t−ωtD2t−(1−g1t)2a22t−g2t2a12tdt,where ρ is an adjusting parameter, it satisfies 0<ρ<1, and △>0 is the residual value of returns, the return rate to be a function of dynamic goodwill, and it is assumed as exogenous and time-independent. Parameter r is the discount factor; it satisfies 0<r<1, and it is assumed to be equal between the manufacturer and the retailer. The term p1t+△ρGt in equation (7) is the manufacturer’s marginal profits from the online channel, which consist of online purchase, p1t, and the residual value of returns, △ρGt. The term ωt+△ρG in equation (7) is the manufacturer’s marginal profits from the offline channel, which consist of offline purchase, ωt, and the residual value of returns, △ρGt. The term ((1−g2t)/2)a12t is the manufacturer’s expenditure on green advertising. The term (g1t/2)a22t represents the percentage of the retailer’s green advertising efforts that the manufacturer wants to pay. The participation rate, g1t, is an incentive of the retailer’s green advertising expenditure. When a noncooperative green advertising strategy is offered, g1t=0. When the manufacturer uses a cooperative green advertising strategy, g1t>0. The term p2t−ωt in equation (8) is the traditional offline retailer’s marginal profits. The term ((1−g1t)/2)a22t is the retailer’s expenditure on green advertising. The term (g2t/2)a22t represents the percentage of the manufacturer’s green advertising efforts that the retailer wants to pay. The participation rate, g2t, is an incentive of the manufacturer’s green advertising expenditure. When a noncooperative green advertising strategy is offered, g2t=0. When the retailer uses a cooperative green advertising strategy, g2t>0.


## 3.1. O2O CLSC Model

In the O2O CLSC, this study supposes that there are two marketing channels. One is a traditional channel, consisting of a manufacturer, playerM, and its traditional retailer, player R. The other is a manufacturer’s newly added online channel. The manufacturer sells its products through these two independent and competitive channels; the retailer collects used/end-of-life products from consumers in a reverse logistic channel (see Figure 1).Figure 1
The O2O CLSC distribution diagram.The manufacturer, playerM, decides price p1, for the online channel, as well as the wholesale price ω for the traditional retailer. The consumer’s consumption value will be denoted by v. In other words, the notation v means the consumer’s willingness to pay. It assumes that the product value v, for analytic simplicity, is uniformly distributed from 0 to 1, with a density of 1. Additionally, because all channel members sell both the manufactured and the remanufactured products simultaneously, the consumer’s consumption value is less than 1. This study supposes that the return rate positively correlates with consumers’ willingness to pay. §Gt=φGt is denoted to be the dynamic return rate of used/end-of-life products in a reverse logistic channel from consumers to retailers. As § is upper bound to 1. When §=0, consumers dispersed the used/end-of-life products in the environment. However, all the consumers returned the used/end-of-life products to the store when §=1. See numerical analysis in Table 5 for details. Besides, this research assumes that the return rate positively correlates with consumers’ willingness to pay. Therefore, the consumer’s consumption value at any instant of time can be extended as φGtv. The parameter 0<φ≤1 is the consumer’s return willingness consciousness on current willingness to pay. Chiang, Chhajed, and Hess (2003) showed that most products are less acceptable from web-based channel than the traditional channel. That is because if consumers buy the products from an online store, typically, they should have to wait several days for delivery and will be charged a shipping and handling fee. Second, it is difficult to eliminate the production uncertainty only after viewing the web page’s photographs. Even the customer can refund the product, but he has to pay the delivery fee, and the refund is typically only partial, reducing the customer’s consumption value [48]. Third, like Yan, Cao, and Pei [8] addressed, the online seller may be located in another city; therefore, the after-sale service questions arise. Hence, if consumers buy the products from the online channel, the consumer’s consumption value will be denoted by θφGtv.0<θ<1 is the consumer’s acceptance index (for details, see Table 4).Table 4
The product acceptance index for the online channel.
CategoryBookToothpasteFood itemsShoesAcceptable0.9040.8860.7840.769Note: all of the above data are obtained from the survey of Kacen, Hess, and Chiang [48].If consumers buy the products from the offline channel, the consumer’s surplus would beφGtv−p2≥0. Consumers’ surplus satisfies θφGtv−p1≥0, and consumers would consider buying the products from the online channel. If the consumer’s marginal valuation v2=p2/φGt, there is indifference to buying from the offline channel or not. Similarly, if the consumer’s marginal valuation v1=p1/φθGt, there is indifference to buying from the online channel or not. In the O2O CLSC, consumers can buy the products from either offline or online channels. Therefore, before the consumers buy the products, they will compare the surplus between the online channel and the offline channel and determine from which channel to buy the products. If φGtv−p2≥θφGtv−p1, then consumers would prefer to buy the products from the offline channel. If φGtv−p2≤θφGtv−p1, then the consumers would prefer the online channel to buy the products. If the consumer’s marginal valuation v12=p2−p1/φ1−θGt, there is indifference to buying the products from the offline or online channels. Using a model structure similar to that of Chiang, Chhajed, and Hess [7], in the case where v1≤v2, v1≤v2≤v12. Therefore, when the consumers’ willingness to pay is in the interval v1,v12, they would prefer to buy from the online channel, and when the consumers’ willingness to pay is in the interval v12,v1, they would prefer to buy from the offline channel. The consumer’s willingness to pay is in 0,v1; no one will buy the products from the O2O channel. When the consumers’ willingness to pay is in the interval v2,v1, they would prefer to buy from the offline channel. Using a model structure similar to that of Chiang et al. [7], the demand functions of online channels and offline channels can be denoted as d1 and d2, respectively, as follows:(3)d1t=θp2t−p1tφθ1−θGt,ifp2t≥p1tθ,0,otherwise,d2t=1−p2t−p1tφ1−θGt,ifp2t≥p1tθ,φGt−p2t,otherwise,(4)Dt=dp1t,p2tγGt.This research supposes that the O2O final expected demands are determined by a separable multiplicative function of green adverting dynamic goodwillγGt, the online channel price, the offline price, and the consumer’s return willingness [16, 49].Therefore, the demand functions of online channels and offline channels can be rewritten as(5)D1t=θp2t−p1tφθ1−θGtγGt,D2t=1−p2t−p1tφ1−θGtγGt,where γ is the adjusting parameter, and it satisfies 0<γ<1. This study described the residual value, Δ>0, as the per-return benefit that the manufacturer gains from remanufacturing rather than manufacturing the new products. This would seem to suggest that manufacturing a new product from a used product is less costly than using raw material. Therefore, the manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be extended as (6)JM=Max∫0∞e−rtp1t+△ρGtD1t+ωt+△ρGtD2t−(1−g2t)2a12t−g1t2a22tdt,and the retailer’s objective function is(7)JR=Max∫0∞e−rtp2t−ωtD2t−(1−g1t)2a22t−g2t2a12tdt,where ρ is an adjusting parameter, it satisfies 0<ρ<1, and △>0 is the residual value of returns, the return rate to be a function of dynamic goodwill, and it is assumed as exogenous and time-independent. Parameter r is the discount factor; it satisfies 0<r<1, and it is assumed to be equal between the manufacturer and the retailer. The term p1t+△ρGt in equation (7) is the manufacturer’s marginal profits from the online channel, which consist of online purchase, p1t, and the residual value of returns, △ρGt. The term ωt+△ρG in equation (7) is the manufacturer’s marginal profits from the offline channel, which consist of offline purchase, ωt, and the residual value of returns, △ρGt. The term ((1−g2t)/2)a12t is the manufacturer’s expenditure on green advertising. The term (g1t/2)a22t represents the percentage of the retailer’s green advertising efforts that the manufacturer wants to pay. The participation rate, g1t, is an incentive of the retailer’s green advertising expenditure. When a noncooperative green advertising strategy is offered, g1t=0. When the manufacturer uses a cooperative green advertising strategy, g1t>0. The term p2t−ωt in equation (8) is the traditional offline retailer’s marginal profits. The term ((1−g1t)/2)a22t is the retailer’s expenditure on green advertising. The term (g2t/2)a22t represents the percentage of the manufacturer’s green advertising efforts that the retailer wants to pay. The participation rate, g2t, is an incentive of the manufacturer’s green advertising expenditure. When a noncooperative green advertising strategy is offered, g2t=0. When the retailer uses a cooperative green advertising strategy, g2t>0.


## 4. Stackelberg Equilibrium

This section will establish three different advertising decisions (noncooperative, unilateral cooperative, and bilateral cooperative) under three different contracts (wholesale price contract, revenue-sharing contract, and financial support contract) in the O2O CLSC and relevant equilibrium solutions are derived.


### 4.1. Wholesale Price Contract

#### 4.1.1. A Noncooperative Game under Wholesale Price Contract

This part considers the noncooperative green advertising strategy under the wholesale price contract. Normalizing the manufacturer’s production cost to zero without loss of generality omitted the time argument. The manufacturer’s objective function can be rewritten as(8)JM=Max∫0∞e−rtp1NW+△ρGNWγθp2NW−p1NWφθ1−θ+ωNW+△ρGNWγGNW−γp2NW−p1NWφ1−θ−a1NW22dt,and the retailer’s objective function is(9)JR=Max∫0∞e−rtp2NW−ωNWγGNW−γp2NW−p1NWφ1−θ−a2NW22dt.


#### 4.1.2. A Unilateral Cooperative Game under Wholesale Price Contract

This part considers the unilateral cooperative green advertising strategy under the wholesale price contract. The manufacturer’s objective function can be rewritten as(10)JM=Max∫0∞e−rtp1UW+△ρGUWγθp2UW−p1UWφθ1−θ+ωUW+△ρGUWγGUW−γp2UW−p1UWφ1−θ−a1UW22−gUW2a2UW2dt,and the retailer’s objective function is(11)JR=Max∫0∞e−rtp2UW−ωUWγGUW−γp2UW−p1UWφ1−θ−1−gUWa2UW22dt.


#### 4.1.3. A Bilateral Cooperative Game under Wholesale Price Contract

This part considers the bilateral cooperative green advertising strategy under the wholesale price contract. The manufacturer’s objective function can be rewritten as(12)JM=Max∫0∞e−rtp1BW+△ρGBWγθp2BW−p1BWφθ1−θ+ωBW+△ρGBWγGBW−γp2BW−p1BWφ1−θ−1−g2BW2a1BW2−g1BW2a2BW2dt,and the retailer’s objective function is(13)JR=Max∫0∞e−rtp2BW−ωBWγGBW−γp2BW−p1BWφ1−θ−1−g2BW2a2BW2−g2BW2a1BW2dt,and all the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table5.Table 5
The optimal solutions under a wholesale price contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωGNWφ−ρ△/2GUWφ−ρ△/2GBWφ−ρ△/2p1GNWθφ−ρ△/2GUWθφ−ρ△/2GBWθφ−ρ△/2p2GNWφ3−θ−2ρ△/4GUWφ3−θ−2ρ△/4GBWφ3−θ−2ρ△/4a1μ1γA1/8r+δθφμ1γA1/8r+δθφμ1γA2/32r+δθφa2μ2γ1−θφ/16r+δμ2γA2/32r+δθφμ2γA2/32r+δθφg1−A2−21−θθφ2/A2A2−21−θθφ2/A2g2−−21−θθφ2/A2(14)A1=θ1+θφ2+4θρφ△+2ρ2△2,A2=θ5+3θφ2+16θρφ△+8ρ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Lemma 1.
If the consumer’s acceptanceθ>θ1, where θ1=ρ△/φ, then the manufacturer (or supplier) will choose the O2O CLSC.Proof.
See the “Appendix.”Lemma 2.
shows that the consumer’s acceptanceθ should not be too low in the O2O CLSC. If it is very low, the consumers will not buy the products in the online channel, which means that the manufacturer will open the traditional channel only and will not open the online channel.Proposition 1.
Comparing the green advertising strategies under the wholesale price contract, the bilateral cooperative incentive strategy makes both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BW>a1UW=a1NW and a2BW=a2UW>a2NW.Proof.
See the “Appendix.”
Under the wholesale price contract, when the O2O CLSC implements a bilateral cooperative incentive strategy, both the manufacturer and the retailer will support each green advertising cost and promote each other increasing advertising investments. In this case, the retailer’s purpose is to incentivize the manufacturer to invest more green efforts; the manufacturer’s incentive strategy could not affect retailers. In the unilateral cooperative incentive strategy, the manufacturer supports part of the retailer’s advertising cost; in this case, the manufacturer invests less because his purpose is to promote the retailer to invest more and ultimately increase sales.
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NW and a2NW into equation (1) is given by(15)G∞NW=γμ221−θθφ2+2μ12θ1+θφ2+4θρφ△+2ρ2△216δr+δθφ.
The steady-state accumulation value of return rate under a unilateral cooperative green advertising promotion strategy scenario by insertinga1UW and a2UW into equation (1) is given by(16)G∞UW=γθ4μ121+θ+μ225+3θφ2+16μ12+μ22θρφ△+8μ12+μ22ρ2△232δr+δθφ.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BW and a2BW into equation (1) is given by(17)G∞BW=μ12+μ22γθ5+3θφ2+16θρφ△+8ρ2△232δr+δθφ.Proposition 2.
Under the wholesale price contract, the bilateral cooperative incentive strategy can help the O2O CLSC accumulate more consumers’ environmental consciousness than others. It turns out thatG∞BW>G∞UW>G∞NW.Proof.
See the “Appendix.”
In the noncooperative game, all channel players invest less in green advertising investments; this leads to lower accumulated consumers’ environmental consciousness. In the unilateral cooperative green advertising strategy, the manufacturer supports part of the retailer’s advertising cost; this promotes the retailer’s investment more in green advertising efforts and leads to higher accumulated consumer environmental consciousness. A bilateral cooperative green advertising strategy can incentivize both the manufacturer and the retailer to invest more in green efforts and achieve the best environmental performance.Proposition 3.
Under wholesale price contracts, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition2, it is easy to check p1BW>p1UW>p1NW,p2BW>p2UW>p2NW, and ωBW>ωUW>ωNW. In the bilateral cooperative incentive strategy, the manufacturer always sets higher online sell prices and wholesale prices without destroying the sales, promoting the retailer to increase his selling price. Therefore, the bilateral cooperative incentive strategy always allows the O2O closed-loop supply chain to achieve Pareto improvement. This result, on another side, shows that sustainable development of resources can bring out larger social benefits and performance.Corollary 1.
Under wholesale price contracts, there is a positive relationship between environmental consciousness level and channel pricing strategies.(18)∂p1∂G=θφ−ρ△4G>0,∂ω∂G=φ−ρ△4G>0,∂p2∂G=3−θφ−2ρ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that all channel players can increase their pricing strategies without affecting sales; andφ>ρ△/θ tells that the consumers’ willingness to return is much greater than the joint effect between the residual value of returns and consumer acceptance.


### 4.2. Revenue-Sharing Contract

This scenario proposes that the O2O CLSC uses a revenue-sharing incentive mechanism to coordinate the online and offline channels. In this part, according to the sharing parameter,0<ε<1, the manufacturer shares part of his residual value of returns to the retailer to incentive the retailer to close the loop and increase the green advertising investment.Therefore, under the revenue-sharing contract, the manufacturer’s objective function can be extended as(19)JM=Max∫0∞e−rtp1S+1−ε△ρGSD1S+ωS+1−ε△ρGSD2S−1−g2S2a1S2−g1S2a2S2dt.Furthermore, the retailer’s objective function is(20)JR=Max∫0∞e−rtp2S−ωS+ε△ρGSD2S+ε△ρGSD2S−1−g1S2a2S2−g2S2a1S2dt.


#### 4.2.1. A Noncooperative Game under a Revenue-Sharing Contract

This part considers the noncooperative green advertising strategy under the revenue-sharing contract. This means the support strategies from manufacturers and retailers are both zero. The manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be rewritten as(21)JM=Max∫0∞e−rtp1NS+1−ε△ρGNSD1NS+ωNS+1−ε△ρGNSD2NS−a1NS22dt.Moreover, the retailer’s objective function is(22)JR=Max∫0∞e−rtp2NS−ωNS+ε△ρGNSD2NS+ε△ρGNSD2NS−a2NS22dt.


#### 4.2.2. A Unilateral Cooperative Game under a Revenue-Sharing Contract

This part considers the unilateral cooperative green advertising strategy under the revenue-sharing contract. The manufacturer’s objective function can be rewritten as(23)JM=Max∫0∞e−rtp1US+1−ε△ρGUSD1US+ωUS+1−ε△ρGUSD2US−a1US22−gUS2a2US2dt.Moreover, the retailer’s objective function is(24)JR=Max∫0∞e−rtp2US−ωUS+ε△ρGUSD2US+ε△ρGUSD1US−1−gUS2a2US2dt.


#### 4.2.3. A Bilateral Cooperative Game under Revenue-Sharing Contract

This part considers the bilateral cooperative green advertising strategy under the revenue-sharing contract. The manufacturer’s objective function can be rewritten as(25)JM=Max∫0∞e−rtp1BS+1−ε△ρGBSγθp2BS−p1BSφθ1−θ+ωBS+1−ε△ρGBSγGBS−γp2BS−p1BSφ1−θ−1−g2BS2a1BS2−g1BS2a2BS2dt,and the retailer’s objective function is(26)JR=Max∫0∞e−rtp2BS−ωBS+ε△ρGBSγGBS−γp2BS−p1BSφ1−θ+ε△ρGBSγθp2BS−p1BSφθ1−θ−1−g1BS2a2BS2−g2BS2a1BS2dt.All the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table6.Table 6
The optimal solutions under a revenue-sharing contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωGNSφ−1−ερ△/2GUSφ−1−ερ△/2GBSφ−1−ερ△/2p1GNSθφ−1−ερ△/2GUSθφ−1−ερ△/2GBSθφ−1−ερ△/2p2GNS3−θφ−21−ερ△/4GUS3−θφ−21−ερ△/4GBS3−θφ−21−ερ△/4a1μ1γA3/8r+δθφμ1γA3/8r+δθφμ1γA5/32r+δθφa2μ2γA4/16r+δθφμ2γA5/32r+δθφμ2γA5/32r+δθφg1—A6/A5A6/A5g2——A7/A5(27)A3=θ1+θφ2+41−εθρφ△+21−ε2ρ2△2,A4=1−θθφ2+8εθρφ△+81−εερ2△2,A5=θ5+3θφ2+82−εθρφ△+81−ερ2△2,A6=θ3+5θφ2+82−3εθρφ△+81−ε1−2ερ2△2,A7=21−θθφ2+16εθρφ△+161−εερ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Lemma 3.
If the consumer’s acceptance0<θ∗<θ′<θ, where θ∗=1−ερ△/φ, then the manufacturer (or supplier) will choose the O2O CLSC.Proof.
See the “Appendix.”Lemma 4.
Under a revenue-sharing contract, the consumer’s acceptanceθ' should not be too low in the O2O CLSC but could be lower than the θ under wholesale price contract.Lemma 5.
If the sharing parameterε<ε1, then the manufacturer (or supplier) will choose a unilateral cooperative strategy in the O2O CLSC, where ε1=3ρ△θφ+ρ△−ρ2△29θ2φ2+2θρφ△+ρ2△2−φ2θ3+5θ/4ρ2△2.Proof.
See the “Appendix.”Lemma 6.
Sharing parameterε should not be too high; if it is very high, the manufacturer will not support part of the retailer’s advertising costs, which means that the whole O2O CLSC will change back to the noncooperative strategy.Proposition 4.
Comparing the green advertising strategies under revenue-sharing contracts, the bilateral cooperative incentive strategies make both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BS>a1US=a1NS and a2BS=a2US>a2NSProof.
See the “Appendix.”
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NS and a2NS into equation (1) is given by(28)G∞NS=γθμ221−θ+2μ121+θφ2+8μ121−ε+μ22εθρφ△+41−εμ121−ε+2μ22ερ2△216δr+δθφ.
The steady-state accumulation value of return rate under the unliteral cooperative green advertising promotion strategy scenario by insertinga1US and a2US into equation (1) is given by(29)G∞US=γθ4μ121+θ+μ225+3θφ2+8μ222−ε+2μ121−εθρφ△+8μ22+μ121−ε1−ερ2△232δr+δθφ.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BS and a2BS into equation (1) is given by(30)G∞BS=μ12+μ22γθ5+3θφ2+82−εθρφ△+81−ερ2△232δr+δθφ.Proposition 5.
Under the revenue-sharing contract, the bilateral cooperative incentive strategy can help the O2O CLSC have greater accumulated consumers’ environmental consciousness than others. It turns out thatG∞BS>G∞US>G∞NS.Proof.
See the “Appendix.”Proposition 6.
Under a revenue-sharing contract, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition5, it is easy to check that p1BS>p1US>p1NS,p2BS>p2US>p2NS, and ωBS>ωUS>ωNS.Corollary 2.
Under a revenue-sharing contract, there is a positive relationship between environmental consciousness level and channel pricing strategies.(31)∂p1∂G=θφ−1−ερ△4G>0∂ω∂G=φ−1−ερ△4G>0∂p2∂G=3−θφ−21−ερ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that, without affecting sales, all channel players can increase their pricing strategies and ultimately increase their profits; andφ>1−ερ△/θ tells that the consumer’s environmental consciousness is much greater than the joint effect between the residual value of returns and the consumer’s acceptance.Corollary 3.
Under the revenue-sharing contract, it holds that (1) the optimal pricing decisions always increase inε; (2) the manufacturer advertising investments are decreasing in ε; (3) the retailer advertising investments always increase in ε.(32)∂p1∂ε=ρ△G2>0,∂ω∂ε=ρ△G2>0,∂p2∂ε=ρ△G2>0,∂a1∂ε=μ1γ−4θρφ△−41−ερ2△28r+δθφ<0,∂a2∂ε=μ2γρ△θφ+1−2ερ△2r+δθφ>0.Corollary 4.
As the manufacturer decreases the advertising investments and increases pricing, this ultimately promotes the retailer increasing offline prices. On the other said, higher sharing revenues would incentivize the retailer through increases in green advertising investments to maintain sales. Additionally, higher sharing revenues would incentivize the manufacturer by decreasing the green advertising investments and increasing wholesale and online prices to recoup his losses, which would be affecting the online sales. On the other hand, the online demand is a decreasing function of sharing valueε.


### 4.3. Financial Support Contract

Here, in this scenario, it is proposed that the O2O CLSC uses a financial support incentive mechanism to coordinate the online and offline channels. In this part, the manufacturer provides financial support to the offline channel to incentivize the retailer to implement a monetary reward points program and increase the green advertising investment, ultimately alleviating the O2O CLSC competition. In the financial support contract, denoting the monetary rewards points to the unit products is a function of the dynamic return, and it turns out as(33)S=sρG,where s0<s<1 is the parameter to measure monetary reward points on the retailer sales.In traditional offline channel, the effort of monetary reward points is put in the utility function of consumers; if consumers buy the products from the traditional retailer channel, the consumers’ surplus would beφGv−p2+sρG≥0. Consumers’ surplus satisfies θφGv−p1≥0, and consumers would consider buying the products from the online channel. If the consumers’ marginal valuation v2=p2−sρG/φG, there is indifference to buying from the offline channel or not. Similarly, if the consumers’ marginal valuation v1=p1/φθG, there is indifference to buying from the online channel or not. In the O2O channel, consumers can buy the products from either offline or online channels. Therefore, before the consumers buy the products, they will compare the surplus between the online channel and the offline channel and determine from which channel to buy the products. If φGv−p2+sρG≥θφGv−p1, then consumers would prefer to buy the products from the offline channel. If φGv−p2+sρG≤θφGv−p1, then the consumers would prefer the online channel to buy the products. If the consumers’ marginal valuation v12=p2−p1−sρG/φ1−θG, there is indifference to buying the products from the offline or online channels. Therefore, the demand functions of online channels and offline channels can be denoted as d1 and d2, respectively, as follows:(34)d1t=θp2t−p1t−sρθGφθ1−θGt,ifp2t≥p1t+sρθGθ,0,otherwise,d2t=1−p2−p1−sρGφ1−θG,ifp2t≥p1t+sρθGθ,φG−p2t+sρG,otherwise..Assume that the O2O final demands are determined by a separable multiplicative function of the online channel price, the offline price, and consumers environmental consciousness [50]:(35)Dt=dp1t,p2tγG.Therefore, the demand functions of online channels and offline channels can be rewritten as(36)D1t=θp2−p1−sρθGφθ1−θGγG,D2t=1−p2−p1−sρGφ1−θGγG.Therefore, under a financial support contract, the manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be extended as(37)JM=Max∫0∞e−rtp1F+△ρGFD1F+ωF+△ρGFD2F−1−g2F2a1F2−g1F2a2F2dt.The retailer’s objective function is(38)JR=Max∫0∞e−rtp2F−ωFD2F−1−g1F2a2F2−g2F2a1F2dt.


#### 4.3.1. A Noncooperative Game under a Financial Support Contract

This part considers the noncooperative green advertising strategy under financial support. The manufacturer’s objective function can be extended as(39)JM=Max∫0∞e−rtp1NF+△ρGNFγθp2NF−p1NF−sρθGNFφθ1−θ+ωNF+△ρGNFγGNF−γp2NF−p1NF−sρGNFφ1−θ−a1NF22dt,and the retailer’s objective function is (40)JR=Max∫0∞e−rtp2NF−ωNFγGNF−γp2NF−p1NF−sρGNFφ1−θ−a2NF22dt.


#### 4.3.2. The Unilateral Cooperative Game under a Financial Support Contract

This part considers the unilateral cooperative green advertising strategy under the financial support contract. The manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be rewritten as(41)JM=Max∫0∞e−rtp1UF+△ρGUFγθp2UF−p1UF−sρθGUFφθ1−θ+ωUF+△ρGUFγGUF−γp2UF−p1UF−sρGUFφ1−θ−a1UF22−gUF2a2UF2dt,and the retailer’s objective function is(42)JR=Max∫0∞e−rtp2UF−ωUFγGUF−γp2UF−p1UF−sρGUFφ1−θ−1−gUF2a2UF2dt.


#### 4.3.3. A Bilateral Cooperative Game under a Financial Support Contract

This part considers the bilateral cooperative green advertising strategy under the financial support contract. The manufacturer’s objective function can be rewritten as(43)JM=Max∫0∞e−rtp1BF+△ρGBFγθp2BF−p1BF−sρθGBFφθ1−θ+ωBF+△ρGBFγGBF−γp2BF−p1BF−sρGBFφ1−θ−1−g2BF2a1BF2−g1BF2a2BF2dt,and the retailer’s objective function is(44)JR=Max∫0∞e−rtp2BF−ωBFγGBF−γp2BF−p1BF−sρGBFφ1−θ−1−g1BF2a2BF2−g2BF2a1BF2dt.All the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table7.Table 7
The optimal solutions under a financial support contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωsρ+φ−ρ△GNF/2sρ+φ−ρ△GUF/2sρ+φ−ρ△GBF/2p1θφ−ρ△GNF/2θφ−ρ△GUF/2θφ−ρ△GBF/2p23sρ+3−θφ−2ρ△GNF/43sρ+3−θφ−2ρ△GUF/43sρ+3−θφ−2ρ△GBF/4a1μ1γs2θρ2+2s1−θθρφ+1−θF1/8r+δ1−θθφμ1γs2θρ2+2s1−θθρφ+1−θF1/8r+δ1−θθφμ1γ5s2θρ2+10s1−θθρφ2+1−θF/32r+δ1−θθφa2μ2γsρ+φ−θφ2/16r+δ1−θφμ2γ5s2θρ2+10s1−θθρφ+1−θF2/32r+δ1−θθφμ2γ5s2θρ2+10s1−θθρφ+1−θF2/32r+δ1−θθφg1−3s2θρ2+6s1−θθρφ+1−θF3/5s2θρ2+10s1−θθρφ+1−θF23s2θρ2+6s1−θθρφ+1−θF3/5s2θρ2+10s1−θθρφ+1−θF2g2−−2θsρ+φ−θφ2/5s2θρ2+10s1−θθρφ+1−θF2(45)F1=θ1+θφ2+4θρφ△+2ρ2△2,F2=θ5+3θφ2+16θρφ△+8ρ2△2,F3=θ3+5θφ2+16θρφ△+8ρ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Proposition 7.
Comparing the green advertising strategies under the financial support contract, the bilateral cooperative incentive strategies make both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BF>a1UF=a1NF and a2BF=a2UF>a2NF.Proof.
See the “Appendix.”
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NF and a2NF into equation (1) is given by(46)G∞NF=γs2u12+u22θρsρ+21−θφ+1−θ2μ12F1+μ221−θθφ216δr+δ1−θθφ.
The steady-state accumulation value of return rate under the unilateral cooperative green advertising promotion strategy scenario by insertinga1UF and a2UF into equation (1) is given by(47)G∞UF=γs4μ12+5μ22θρsρ+21−θφ+1−θF432δr+δ1−θθφ,F4=θ4μ121+θ+μ225+3θφ2+16μ12+μ22θρφ△+8μ12+μ22ρ2△2.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BF and a2BF into equation (1) is given by(48)G∞BF=μ12+μ22γ5s2θρ2+10s1−θθρφ+1−θF232δr+δ1−θθφ.Proposition 8.
Under the financial support contract, the bilateral cooperative incentive strategy can help the O2O CLSC have greater accumulated consumers’ environmental consciousness than others. It turns out thatG∞BF>G∞UF>G∞NF.Proof.
See the “Appendix.”Proposition 9.
Under financial support contract, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition8, it is easy to check that p1BF>p1UF>p1NF,p2BF>p2UF>p2NF, and ωBF>ωUF>ωNF.Corollary 5.
Under the financial support contract, there is a positive relationship between environmental consciousness level and channel pricing strategies.(49)∂p1∂G=θφ−ρ△4G>0,∂ωNF∂GNF=sρ+φ−ρ△4G>0,∂p2∂G=3sρ+3−θφ−2ρ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that, without affecting sales, all channel players can increase their pricing strategies and ultimately increase their profits; andφ>ρ△/θ tells that the consumer’s environmental consciousness is much greater than the joint effect between the residual value of returns and the consumer’s acceptance.Corollary 6.
Under financial support contract, it holds that (1) the optimal wholesale and offline pricing decisions always increase ins; (2) the offline channel sales and the manufacturer and retailer advertising investments are also increasing in s; (3) the online channel decision is not affected by s; (4) the online channel sales are decreasing in s.(50)∂p1∂s=0,∂p1∂s=ρG2>0,∂p2∂s=3ρG4>0,∂a1∂s=μ1γρsρ+φ−θφ4r+δ1−θφ>0,∂a2∂s=μ2γρsρ+φ−θφ8r+δ1−θφ>0.
The online pricing decision is not affected by the financial support contact. TheThe monetary reward points program would incentivize consumers to buy from the offline channel, which also takes away a few consumers from the manufacturer’s direct online channel. As the online sales decrease, this ultimately promotes the manufacturer to increase advertising investments to maintain sales. On the other side, as the advertising investments increase, all channel members have to increase price decisions to recoup their losses.Proposition 10.
Comparing the bilateral green advertising strategies under different contracts, the wholesale price contract makes both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BW>a1BF>a1BS and a2BW>a2BF>a2BS.Proof.
See the “Appendix.”
Under the wholesale price contract, the green advertising investments are higher than other contracts. Under revenue-sharing and financial support contracts, the manufacturer should transfer part of his profits to the retailer. The retailer invests less because the manufacturer determines the sharing and financial support values. Therefore, revenue-sharing contracts and financial support contracts lead to lower environmental performance.Proposition 11.
Comparing the bilateral accumulated consumers’ environmental consciousness under different contracts, the wholesale price contract makes the O2O CLSC have greater accumulated consumer environmental consciousness than others. It turns out thatG∞BW>G∞BF>G∞BS.Proof.
See the “Appendix.”
The green advertising strategies contribute to the accumulated consumer environmental consciousness. Higher (lower) consumer environmental consciousness means higher (lower) environmental performance.


## 4.1. Wholesale Price Contract

### 4.1.1. A Noncooperative Game under Wholesale Price Contract

This part considers the noncooperative green advertising strategy under the wholesale price contract. Normalizing the manufacturer’s production cost to zero without loss of generality omitted the time argument. The manufacturer’s objective function can be rewritten as(8)JM=Max∫0∞e−rtp1NW+△ρGNWγθp2NW−p1NWφθ1−θ+ωNW+△ρGNWγGNW−γp2NW−p1NWφ1−θ−a1NW22dt,and the retailer’s objective function is(9)JR=Max∫0∞e−rtp2NW−ωNWγGNW−γp2NW−p1NWφ1−θ−a2NW22dt.


### 4.1.2. A Unilateral Cooperative Game under Wholesale Price Contract

This part considers the unilateral cooperative green advertising strategy under the wholesale price contract. The manufacturer’s objective function can be rewritten as(10)JM=Max∫0∞e−rtp1UW+△ρGUWγθp2UW−p1UWφθ1−θ+ωUW+△ρGUWγGUW−γp2UW−p1UWφ1−θ−a1UW22−gUW2a2UW2dt,and the retailer’s objective function is(11)JR=Max∫0∞e−rtp2UW−ωUWγGUW−γp2UW−p1UWφ1−θ−1−gUWa2UW22dt.


### 4.1.3. A Bilateral Cooperative Game under Wholesale Price Contract

This part considers the bilateral cooperative green advertising strategy under the wholesale price contract. The manufacturer’s objective function can be rewritten as(12)JM=Max∫0∞e−rtp1BW+△ρGBWγθp2BW−p1BWφθ1−θ+ωBW+△ρGBWγGBW−γp2BW−p1BWφ1−θ−1−g2BW2a1BW2−g1BW2a2BW2dt,and the retailer’s objective function is(13)JR=Max∫0∞e−rtp2BW−ωBWγGBW−γp2BW−p1BWφ1−θ−1−g2BW2a2BW2−g2BW2a1BW2dt,and all the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table5.Table 5
The optimal solutions under a wholesale price contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωGNWφ−ρ△/2GUWφ−ρ△/2GBWφ−ρ△/2p1GNWθφ−ρ△/2GUWθφ−ρ△/2GBWθφ−ρ△/2p2GNWφ3−θ−2ρ△/4GUWφ3−θ−2ρ△/4GBWφ3−θ−2ρ△/4a1μ1γA1/8r+δθφμ1γA1/8r+δθφμ1γA2/32r+δθφa2μ2γ1−θφ/16r+δμ2γA2/32r+δθφμ2γA2/32r+δθφg1−A2−21−θθφ2/A2A2−21−θθφ2/A2g2−−21−θθφ2/A2(14)A1=θ1+θφ2+4θρφ△+2ρ2△2,A2=θ5+3θφ2+16θρφ△+8ρ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Lemma 1.
If the consumer’s acceptanceθ>θ1, where θ1=ρ△/φ, then the manufacturer (or supplier) will choose the O2O CLSC.Proof.
See the “Appendix.”Lemma 2.
shows that the consumer’s acceptanceθ should not be too low in the O2O CLSC. If it is very low, the consumers will not buy the products in the online channel, which means that the manufacturer will open the traditional channel only and will not open the online channel.Proposition 1.
Comparing the green advertising strategies under the wholesale price contract, the bilateral cooperative incentive strategy makes both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BW>a1UW=a1NW and a2BW=a2UW>a2NW.Proof.
See the “Appendix.”
Under the wholesale price contract, when the O2O CLSC implements a bilateral cooperative incentive strategy, both the manufacturer and the retailer will support each green advertising cost and promote each other increasing advertising investments. In this case, the retailer’s purpose is to incentivize the manufacturer to invest more green efforts; the manufacturer’s incentive strategy could not affect retailers. In the unilateral cooperative incentive strategy, the manufacturer supports part of the retailer’s advertising cost; in this case, the manufacturer invests less because his purpose is to promote the retailer to invest more and ultimately increase sales.
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NW and a2NW into equation (1) is given by(15)G∞NW=γμ221−θθφ2+2μ12θ1+θφ2+4θρφ△+2ρ2△216δr+δθφ.
The steady-state accumulation value of return rate under a unilateral cooperative green advertising promotion strategy scenario by insertinga1UW and a2UW into equation (1) is given by(16)G∞UW=γθ4μ121+θ+μ225+3θφ2+16μ12+μ22θρφ△+8μ12+μ22ρ2△232δr+δθφ.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BW and a2BW into equation (1) is given by(17)G∞BW=μ12+μ22γθ5+3θφ2+16θρφ△+8ρ2△232δr+δθφ.Proposition 2.
Under the wholesale price contract, the bilateral cooperative incentive strategy can help the O2O CLSC accumulate more consumers’ environmental consciousness than others. It turns out thatG∞BW>G∞UW>G∞NW.Proof.
See the “Appendix.”
In the noncooperative game, all channel players invest less in green advertising investments; this leads to lower accumulated consumers’ environmental consciousness. In the unilateral cooperative green advertising strategy, the manufacturer supports part of the retailer’s advertising cost; this promotes the retailer’s investment more in green advertising efforts and leads to higher accumulated consumer environmental consciousness. A bilateral cooperative green advertising strategy can incentivize both the manufacturer and the retailer to invest more in green efforts and achieve the best environmental performance.Proposition 3.
Under wholesale price contracts, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition2, it is easy to check p1BW>p1UW>p1NW,p2BW>p2UW>p2NW, and ωBW>ωUW>ωNW. In the bilateral cooperative incentive strategy, the manufacturer always sets higher online sell prices and wholesale prices without destroying the sales, promoting the retailer to increase his selling price. Therefore, the bilateral cooperative incentive strategy always allows the O2O closed-loop supply chain to achieve Pareto improvement. This result, on another side, shows that sustainable development of resources can bring out larger social benefits and performance.Corollary 1.
Under wholesale price contracts, there is a positive relationship between environmental consciousness level and channel pricing strategies.(18)∂p1∂G=θφ−ρ△4G>0,∂ω∂G=φ−ρ△4G>0,∂p2∂G=3−θφ−2ρ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that all channel players can increase their pricing strategies without affecting sales; andφ>ρ△/θ tells that the consumers’ willingness to return is much greater than the joint effect between the residual value of returns and consumer acceptance.


## 4.1.1. A Noncooperative Game under Wholesale Price Contract

This part considers the noncooperative green advertising strategy under the wholesale price contract. Normalizing the manufacturer’s production cost to zero without loss of generality omitted the time argument. The manufacturer’s objective function can be rewritten as(8)JM=Max∫0∞e−rtp1NW+△ρGNWγθp2NW−p1NWφθ1−θ+ωNW+△ρGNWγGNW−γp2NW−p1NWφ1−θ−a1NW22dt,and the retailer’s objective function is(9)JR=Max∫0∞e−rtp2NW−ωNWγGNW−γp2NW−p1NWφ1−θ−a2NW22dt.


## 4.1.2. A Unilateral Cooperative Game under Wholesale Price Contract

This part considers the unilateral cooperative green advertising strategy under the wholesale price contract. The manufacturer’s objective function can be rewritten as(10)JM=Max∫0∞e−rtp1UW+△ρGUWγθp2UW−p1UWφθ1−θ+ωUW+△ρGUWγGUW−γp2UW−p1UWφ1−θ−a1UW22−gUW2a2UW2dt,and the retailer’s objective function is(11)JR=Max∫0∞e−rtp2UW−ωUWγGUW−γp2UW−p1UWφ1−θ−1−gUWa2UW22dt.


## 4.1.3. A Bilateral Cooperative Game under Wholesale Price Contract

This part considers the bilateral cooperative green advertising strategy under the wholesale price contract. The manufacturer’s objective function can be rewritten as(12)JM=Max∫0∞e−rtp1BW+△ρGBWγθp2BW−p1BWφθ1−θ+ωBW+△ρGBWγGBW−γp2BW−p1BWφ1−θ−1−g2BW2a1BW2−g1BW2a2BW2dt,and the retailer’s objective function is(13)JR=Max∫0∞e−rtp2BW−ωBWγGBW−γp2BW−p1BWφ1−θ−1−g2BW2a2BW2−g2BW2a1BW2dt,and all the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table5.Table 5
The optimal solutions under a wholesale price contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωGNWφ−ρ△/2GUWφ−ρ△/2GBWφ−ρ△/2p1GNWθφ−ρ△/2GUWθφ−ρ△/2GBWθφ−ρ△/2p2GNWφ3−θ−2ρ△/4GUWφ3−θ−2ρ△/4GBWφ3−θ−2ρ△/4a1μ1γA1/8r+δθφμ1γA1/8r+δθφμ1γA2/32r+δθφa2μ2γ1−θφ/16r+δμ2γA2/32r+δθφμ2γA2/32r+δθφg1−A2−21−θθφ2/A2A2−21−θθφ2/A2g2−−21−θθφ2/A2(14)A1=θ1+θφ2+4θρφ△+2ρ2△2,A2=θ5+3θφ2+16θρφ△+8ρ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Lemma 1.
If the consumer’s acceptanceθ>θ1, where θ1=ρ△/φ, then the manufacturer (or supplier) will choose the O2O CLSC.Proof.
See the “Appendix.”Lemma 2.
shows that the consumer’s acceptanceθ should not be too low in the O2O CLSC. If it is very low, the consumers will not buy the products in the online channel, which means that the manufacturer will open the traditional channel only and will not open the online channel.Proposition 1.
Comparing the green advertising strategies under the wholesale price contract, the bilateral cooperative incentive strategy makes both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BW>a1UW=a1NW and a2BW=a2UW>a2NW.Proof.
See the “Appendix.”
Under the wholesale price contract, when the O2O CLSC implements a bilateral cooperative incentive strategy, both the manufacturer and the retailer will support each green advertising cost and promote each other increasing advertising investments. In this case, the retailer’s purpose is to incentivize the manufacturer to invest more green efforts; the manufacturer’s incentive strategy could not affect retailers. In the unilateral cooperative incentive strategy, the manufacturer supports part of the retailer’s advertising cost; in this case, the manufacturer invests less because his purpose is to promote the retailer to invest more and ultimately increase sales.
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NW and a2NW into equation (1) is given by(15)G∞NW=γμ221−θθφ2+2μ12θ1+θφ2+4θρφ△+2ρ2△216δr+δθφ.
The steady-state accumulation value of return rate under a unilateral cooperative green advertising promotion strategy scenario by insertinga1UW and a2UW into equation (1) is given by(16)G∞UW=γθ4μ121+θ+μ225+3θφ2+16μ12+μ22θρφ△+8μ12+μ22ρ2△232δr+δθφ.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BW and a2BW into equation (1) is given by(17)G∞BW=μ12+μ22γθ5+3θφ2+16θρφ△+8ρ2△232δr+δθφ.Proposition 2.
Under the wholesale price contract, the bilateral cooperative incentive strategy can help the O2O CLSC accumulate more consumers’ environmental consciousness than others. It turns out thatG∞BW>G∞UW>G∞NW.Proof.
See the “Appendix.”
In the noncooperative game, all channel players invest less in green advertising investments; this leads to lower accumulated consumers’ environmental consciousness. In the unilateral cooperative green advertising strategy, the manufacturer supports part of the retailer’s advertising cost; this promotes the retailer’s investment more in green advertising efforts and leads to higher accumulated consumer environmental consciousness. A bilateral cooperative green advertising strategy can incentivize both the manufacturer and the retailer to invest more in green efforts and achieve the best environmental performance.Proposition 3.
Under wholesale price contracts, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition2, it is easy to check p1BW>p1UW>p1NW,p2BW>p2UW>p2NW, and ωBW>ωUW>ωNW. In the bilateral cooperative incentive strategy, the manufacturer always sets higher online sell prices and wholesale prices without destroying the sales, promoting the retailer to increase his selling price. Therefore, the bilateral cooperative incentive strategy always allows the O2O closed-loop supply chain to achieve Pareto improvement. This result, on another side, shows that sustainable development of resources can bring out larger social benefits and performance.Corollary 1.
Under wholesale price contracts, there is a positive relationship between environmental consciousness level and channel pricing strategies.(18)∂p1∂G=θφ−ρ△4G>0,∂ω∂G=φ−ρ△4G>0,∂p2∂G=3−θφ−2ρ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that all channel players can increase their pricing strategies without affecting sales; andφ>ρ△/θ tells that the consumers’ willingness to return is much greater than the joint effect between the residual value of returns and consumer acceptance.


## 4.2. Revenue-Sharing Contract

This scenario proposes that the O2O CLSC uses a revenue-sharing incentive mechanism to coordinate the online and offline channels. In this part, according to the sharing parameter,0<ε<1, the manufacturer shares part of his residual value of returns to the retailer to incentive the retailer to close the loop and increase the green advertising investment.Therefore, under the revenue-sharing contract, the manufacturer’s objective function can be extended as(19)JM=Max∫0∞e−rtp1S+1−ε△ρGSD1S+ωS+1−ε△ρGSD2S−1−g2S2a1S2−g1S2a2S2dt.Furthermore, the retailer’s objective function is(20)JR=Max∫0∞e−rtp2S−ωS+ε△ρGSD2S+ε△ρGSD2S−1−g1S2a2S2−g2S2a1S2dt.


### 4.2.1. A Noncooperative Game under a Revenue-Sharing Contract

This part considers the noncooperative green advertising strategy under the revenue-sharing contract. This means the support strategies from manufacturers and retailers are both zero. The manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be rewritten as(21)JM=Max∫0∞e−rtp1NS+1−ε△ρGNSD1NS+ωNS+1−ε△ρGNSD2NS−a1NS22dt.Moreover, the retailer’s objective function is(22)JR=Max∫0∞e−rtp2NS−ωNS+ε△ρGNSD2NS+ε△ρGNSD2NS−a2NS22dt.


### 4.2.2. A Unilateral Cooperative Game under a Revenue-Sharing Contract

This part considers the unilateral cooperative green advertising strategy under the revenue-sharing contract. The manufacturer’s objective function can be rewritten as(23)JM=Max∫0∞e−rtp1US+1−ε△ρGUSD1US+ωUS+1−ε△ρGUSD2US−a1US22−gUS2a2US2dt.Moreover, the retailer’s objective function is(24)JR=Max∫0∞e−rtp2US−ωUS+ε△ρGUSD2US+ε△ρGUSD1US−1−gUS2a2US2dt.


### 4.2.3. A Bilateral Cooperative Game under Revenue-Sharing Contract

This part considers the bilateral cooperative green advertising strategy under the revenue-sharing contract. The manufacturer’s objective function can be rewritten as(25)JM=Max∫0∞e−rtp1BS+1−ε△ρGBSγθp2BS−p1BSφθ1−θ+ωBS+1−ε△ρGBSγGBS−γp2BS−p1BSφ1−θ−1−g2BS2a1BS2−g1BS2a2BS2dt,and the retailer’s objective function is(26)JR=Max∫0∞e−rtp2BS−ωBS+ε△ρGBSγGBS−γp2BS−p1BSφ1−θ+ε△ρGBSγθp2BS−p1BSφθ1−θ−1−g1BS2a2BS2−g2BS2a1BS2dt.All the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table6.Table 6
The optimal solutions under a revenue-sharing contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωGNSφ−1−ερ△/2GUSφ−1−ερ△/2GBSφ−1−ερ△/2p1GNSθφ−1−ερ△/2GUSθφ−1−ερ△/2GBSθφ−1−ερ△/2p2GNS3−θφ−21−ερ△/4GUS3−θφ−21−ερ△/4GBS3−θφ−21−ερ△/4a1μ1γA3/8r+δθφμ1γA3/8r+δθφμ1γA5/32r+δθφa2μ2γA4/16r+δθφμ2γA5/32r+δθφμ2γA5/32r+δθφg1—A6/A5A6/A5g2——A7/A5(27)A3=θ1+θφ2+41−εθρφ△+21−ε2ρ2△2,A4=1−θθφ2+8εθρφ△+81−εερ2△2,A5=θ5+3θφ2+82−εθρφ△+81−ερ2△2,A6=θ3+5θφ2+82−3εθρφ△+81−ε1−2ερ2△2,A7=21−θθφ2+16εθρφ△+161−εερ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Lemma 3.
If the consumer’s acceptance0<θ∗<θ′<θ, where θ∗=1−ερ△/φ, then the manufacturer (or supplier) will choose the O2O CLSC.Proof.
See the “Appendix.”Lemma 4.
Under a revenue-sharing contract, the consumer’s acceptanceθ' should not be too low in the O2O CLSC but could be lower than the θ under wholesale price contract.Lemma 5.
If the sharing parameterε<ε1, then the manufacturer (or supplier) will choose a unilateral cooperative strategy in the O2O CLSC, where ε1=3ρ△θφ+ρ△−ρ2△29θ2φ2+2θρφ△+ρ2△2−φ2θ3+5θ/4ρ2△2.Proof.
See the “Appendix.”Lemma 6.
Sharing parameterε should not be too high; if it is very high, the manufacturer will not support part of the retailer’s advertising costs, which means that the whole O2O CLSC will change back to the noncooperative strategy.Proposition 4.
Comparing the green advertising strategies under revenue-sharing contracts, the bilateral cooperative incentive strategies make both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BS>a1US=a1NS and a2BS=a2US>a2NSProof.
See the “Appendix.”
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NS and a2NS into equation (1) is given by(28)G∞NS=γθμ221−θ+2μ121+θφ2+8μ121−ε+μ22εθρφ△+41−εμ121−ε+2μ22ερ2△216δr+δθφ.
The steady-state accumulation value of return rate under the unliteral cooperative green advertising promotion strategy scenario by insertinga1US and a2US into equation (1) is given by(29)G∞US=γθ4μ121+θ+μ225+3θφ2+8μ222−ε+2μ121−εθρφ△+8μ22+μ121−ε1−ερ2△232δr+δθφ.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BS and a2BS into equation (1) is given by(30)G∞BS=μ12+μ22γθ5+3θφ2+82−εθρφ△+81−ερ2△232δr+δθφ.Proposition 5.
Under the revenue-sharing contract, the bilateral cooperative incentive strategy can help the O2O CLSC have greater accumulated consumers’ environmental consciousness than others. It turns out thatG∞BS>G∞US>G∞NS.Proof.
See the “Appendix.”Proposition 6.
Under a revenue-sharing contract, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition5, it is easy to check that p1BS>p1US>p1NS,p2BS>p2US>p2NS, and ωBS>ωUS>ωNS.Corollary 2.
Under a revenue-sharing contract, there is a positive relationship between environmental consciousness level and channel pricing strategies.(31)∂p1∂G=θφ−1−ερ△4G>0∂ω∂G=φ−1−ερ△4G>0∂p2∂G=3−θφ−21−ερ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that, without affecting sales, all channel players can increase their pricing strategies and ultimately increase their profits; andφ>1−ερ△/θ tells that the consumer’s environmental consciousness is much greater than the joint effect between the residual value of returns and the consumer’s acceptance.Corollary 3.
Under the revenue-sharing contract, it holds that (1) the optimal pricing decisions always increase inε; (2) the manufacturer advertising investments are decreasing in ε; (3) the retailer advertising investments always increase in ε.(32)∂p1∂ε=ρ△G2>0,∂ω∂ε=ρ△G2>0,∂p2∂ε=ρ△G2>0,∂a1∂ε=μ1γ−4θρφ△−41−ερ2△28r+δθφ<0,∂a2∂ε=μ2γρ△θφ+1−2ερ△2r+δθφ>0.Corollary 4.
As the manufacturer decreases the advertising investments and increases pricing, this ultimately promotes the retailer increasing offline prices. On the other said, higher sharing revenues would incentivize the retailer through increases in green advertising investments to maintain sales. Additionally, higher sharing revenues would incentivize the manufacturer by decreasing the green advertising investments and increasing wholesale and online prices to recoup his losses, which would be affecting the online sales. On the other hand, the online demand is a decreasing function of sharing valueε.


## 4.2.1. A Noncooperative Game under a Revenue-Sharing Contract

This part considers the noncooperative green advertising strategy under the revenue-sharing contract. This means the support strategies from manufacturers and retailers are both zero. The manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be rewritten as(21)JM=Max∫0∞e−rtp1NS+1−ε△ρGNSD1NS+ωNS+1−ε△ρGNSD2NS−a1NS22dt.Moreover, the retailer’s objective function is(22)JR=Max∫0∞e−rtp2NS−ωNS+ε△ρGNSD2NS+ε△ρGNSD2NS−a2NS22dt.


## 4.2.2. A Unilateral Cooperative Game under a Revenue-Sharing Contract

This part considers the unilateral cooperative green advertising strategy under the revenue-sharing contract. The manufacturer’s objective function can be rewritten as(23)JM=Max∫0∞e−rtp1US+1−ε△ρGUSD1US+ωUS+1−ε△ρGUSD2US−a1US22−gUS2a2US2dt.Moreover, the retailer’s objective function is(24)JR=Max∫0∞e−rtp2US−ωUS+ε△ρGUSD2US+ε△ρGUSD1US−1−gUS2a2US2dt.


## 4.2.3. A Bilateral Cooperative Game under Revenue-Sharing Contract

This part considers the bilateral cooperative green advertising strategy under the revenue-sharing contract. The manufacturer’s objective function can be rewritten as(25)JM=Max∫0∞e−rtp1BS+1−ε△ρGBSγθp2BS−p1BSφθ1−θ+ωBS+1−ε△ρGBSγGBS−γp2BS−p1BSφ1−θ−1−g2BS2a1BS2−g1BS2a2BS2dt,and the retailer’s objective function is(26)JR=Max∫0∞e−rtp2BS−ωBS+ε△ρGBSγGBS−γp2BS−p1BSφ1−θ+ε△ρGBSγθp2BS−p1BSφθ1−θ−1−g1BS2a2BS2−g2BS2a1BS2dt.All the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table6.Table 6
The optimal solutions under a revenue-sharing contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωGNSφ−1−ερ△/2GUSφ−1−ερ△/2GBSφ−1−ερ△/2p1GNSθφ−1−ερ△/2GUSθφ−1−ερ△/2GBSθφ−1−ερ△/2p2GNS3−θφ−21−ερ△/4GUS3−θφ−21−ερ△/4GBS3−θφ−21−ερ△/4a1μ1γA3/8r+δθφμ1γA3/8r+δθφμ1γA5/32r+δθφa2μ2γA4/16r+δθφμ2γA5/32r+δθφμ2γA5/32r+δθφg1—A6/A5A6/A5g2——A7/A5(27)A3=θ1+θφ2+41−εθρφ△+21−ε2ρ2△2,A4=1−θθφ2+8εθρφ△+81−εερ2△2,A5=θ5+3θφ2+82−εθρφ△+81−ερ2△2,A6=θ3+5θφ2+82−3εθρφ△+81−ε1−2ερ2△2,A7=21−θθφ2+16εθρφ△+161−εερ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Lemma 3.
If the consumer’s acceptance0<θ∗<θ′<θ, where θ∗=1−ερ△/φ, then the manufacturer (or supplier) will choose the O2O CLSC.Proof.
See the “Appendix.”Lemma 4.
Under a revenue-sharing contract, the consumer’s acceptanceθ' should not be too low in the O2O CLSC but could be lower than the θ under wholesale price contract.Lemma 5.
If the sharing parameterε<ε1, then the manufacturer (or supplier) will choose a unilateral cooperative strategy in the O2O CLSC, where ε1=3ρ△θφ+ρ△−ρ2△29θ2φ2+2θρφ△+ρ2△2−φ2θ3+5θ/4ρ2△2.Proof.
See the “Appendix.”Lemma 6.
Sharing parameterε should not be too high; if it is very high, the manufacturer will not support part of the retailer’s advertising costs, which means that the whole O2O CLSC will change back to the noncooperative strategy.Proposition 4.
Comparing the green advertising strategies under revenue-sharing contracts, the bilateral cooperative incentive strategies make both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BS>a1US=a1NS and a2BS=a2US>a2NSProof.
See the “Appendix.”
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NS and a2NS into equation (1) is given by(28)G∞NS=γθμ221−θ+2μ121+θφ2+8μ121−ε+μ22εθρφ△+41−εμ121−ε+2μ22ερ2△216δr+δθφ.
The steady-state accumulation value of return rate under the unliteral cooperative green advertising promotion strategy scenario by insertinga1US and a2US into equation (1) is given by(29)G∞US=γθ4μ121+θ+μ225+3θφ2+8μ222−ε+2μ121−εθρφ△+8μ22+μ121−ε1−ερ2△232δr+δθφ.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BS and a2BS into equation (1) is given by(30)G∞BS=μ12+μ22γθ5+3θφ2+82−εθρφ△+81−ερ2△232δr+δθφ.Proposition 5.
Under the revenue-sharing contract, the bilateral cooperative incentive strategy can help the O2O CLSC have greater accumulated consumers’ environmental consciousness than others. It turns out thatG∞BS>G∞US>G∞NS.Proof.
See the “Appendix.”Proposition 6.
Under a revenue-sharing contract, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition5, it is easy to check that p1BS>p1US>p1NS,p2BS>p2US>p2NS, and ωBS>ωUS>ωNS.Corollary 2.
Under a revenue-sharing contract, there is a positive relationship between environmental consciousness level and channel pricing strategies.(31)∂p1∂G=θφ−1−ερ△4G>0∂ω∂G=φ−1−ερ△4G>0∂p2∂G=3−θφ−21−ερ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that, without affecting sales, all channel players can increase their pricing strategies and ultimately increase their profits; andφ>1−ερ△/θ tells that the consumer’s environmental consciousness is much greater than the joint effect between the residual value of returns and the consumer’s acceptance.Corollary 3.
Under the revenue-sharing contract, it holds that (1) the optimal pricing decisions always increase inε; (2) the manufacturer advertising investments are decreasing in ε; (3) the retailer advertising investments always increase in ε.(32)∂p1∂ε=ρ△G2>0,∂ω∂ε=ρ△G2>0,∂p2∂ε=ρ△G2>0,∂a1∂ε=μ1γ−4θρφ△−41−ερ2△28r+δθφ<0,∂a2∂ε=μ2γρ△θφ+1−2ερ△2r+δθφ>0.Corollary 4.
As the manufacturer decreases the advertising investments and increases pricing, this ultimately promotes the retailer increasing offline prices. On the other said, higher sharing revenues would incentivize the retailer through increases in green advertising investments to maintain sales. Additionally, higher sharing revenues would incentivize the manufacturer by decreasing the green advertising investments and increasing wholesale and online prices to recoup his losses, which would be affecting the online sales. On the other hand, the online demand is a decreasing function of sharing valueε.


## 4.3. Financial Support Contract

Here, in this scenario, it is proposed that the O2O CLSC uses a financial support incentive mechanism to coordinate the online and offline channels. In this part, the manufacturer provides financial support to the offline channel to incentivize the retailer to implement a monetary reward points program and increase the green advertising investment, ultimately alleviating the O2O CLSC competition. In the financial support contract, denoting the monetary rewards points to the unit products is a function of the dynamic return, and it turns out as(33)S=sρG,where s0<s<1 is the parameter to measure monetary reward points on the retailer sales.In traditional offline channel, the effort of monetary reward points is put in the utility function of consumers; if consumers buy the products from the traditional retailer channel, the consumers’ surplus would beφGv−p2+sρG≥0. Consumers’ surplus satisfies θφGv−p1≥0, and consumers would consider buying the products from the online channel. If the consumers’ marginal valuation v2=p2−sρG/φG, there is indifference to buying from the offline channel or not. Similarly, if the consumers’ marginal valuation v1=p1/φθG, there is indifference to buying from the online channel or not. In the O2O channel, consumers can buy the products from either offline or online channels. Therefore, before the consumers buy the products, they will compare the surplus between the online channel and the offline channel and determine from which channel to buy the products. If φGv−p2+sρG≥θφGv−p1, then consumers would prefer to buy the products from the offline channel. If φGv−p2+sρG≤θφGv−p1, then the consumers would prefer the online channel to buy the products. If the consumers’ marginal valuation v12=p2−p1−sρG/φ1−θG, there is indifference to buying the products from the offline or online channels. Therefore, the demand functions of online channels and offline channels can be denoted as d1 and d2, respectively, as follows:(34)d1t=θp2t−p1t−sρθGφθ1−θGt,ifp2t≥p1t+sρθGθ,0,otherwise,d2t=1−p2−p1−sρGφ1−θG,ifp2t≥p1t+sρθGθ,φG−p2t+sρG,otherwise..Assume that the O2O final demands are determined by a separable multiplicative function of the online channel price, the offline price, and consumers environmental consciousness [50]:(35)Dt=dp1t,p2tγG.Therefore, the demand functions of online channels and offline channels can be rewritten as(36)D1t=θp2−p1−sρθGφθ1−θGγG,D2t=1−p2−p1−sρGφ1−θGγG.Therefore, under a financial support contract, the manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be extended as(37)JM=Max∫0∞e−rtp1F+△ρGFD1F+ωF+△ρGFD2F−1−g2F2a1F2−g1F2a2F2dt.The retailer’s objective function is(38)JR=Max∫0∞e−rtp2F−ωFD2F−1−g1F2a2F2−g2F2a1F2dt.


### 4.3.1. A Noncooperative Game under a Financial Support Contract

This part considers the noncooperative green advertising strategy under financial support. The manufacturer’s objective function can be extended as(39)JM=Max∫0∞e−rtp1NF+△ρGNFγθp2NF−p1NF−sρθGNFφθ1−θ+ωNF+△ρGNFγGNF−γp2NF−p1NF−sρGNFφ1−θ−a1NF22dt,and the retailer’s objective function is (40)JR=Max∫0∞e−rtp2NF−ωNFγGNF−γp2NF−p1NF−sρGNFφ1−θ−a2NF22dt.


### 4.3.2. The Unilateral Cooperative Game under a Financial Support Contract

This part considers the unilateral cooperative green advertising strategy under the financial support contract. The manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be rewritten as(41)JM=Max∫0∞e−rtp1UF+△ρGUFγθp2UF−p1UF−sρθGUFφθ1−θ+ωUF+△ρGUFγGUF−γp2UF−p1UF−sρGUFφ1−θ−a1UF22−gUF2a2UF2dt,and the retailer’s objective function is(42)JR=Max∫0∞e−rtp2UF−ωUFγGUF−γp2UF−p1UF−sρGUFφ1−θ−1−gUF2a2UF2dt.


### 4.3.3. A Bilateral Cooperative Game under a Financial Support Contract

This part considers the bilateral cooperative green advertising strategy under the financial support contract. The manufacturer’s objective function can be rewritten as(43)JM=Max∫0∞e−rtp1BF+△ρGBFγθp2BF−p1BF−sρθGBFφθ1−θ+ωBF+△ρGBFγGBF−γp2BF−p1BF−sρGBFφ1−θ−1−g2BF2a1BF2−g1BF2a2BF2dt,and the retailer’s objective function is(44)JR=Max∫0∞e−rtp2BF−ωBFγGBF−γp2BF−p1BF−sρGBFφ1−θ−1−g1BF2a2BF2−g2BF2a1BF2dt.All the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table7.Table 7
The optimal solutions under a financial support contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωsρ+φ−ρ△GNF/2sρ+φ−ρ△GUF/2sρ+φ−ρ△GBF/2p1θφ−ρ△GNF/2θφ−ρ△GUF/2θφ−ρ△GBF/2p23sρ+3−θφ−2ρ△GNF/43sρ+3−θφ−2ρ△GUF/43sρ+3−θφ−2ρ△GBF/4a1μ1γs2θρ2+2s1−θθρφ+1−θF1/8r+δ1−θθφμ1γs2θρ2+2s1−θθρφ+1−θF1/8r+δ1−θθφμ1γ5s2θρ2+10s1−θθρφ2+1−θF/32r+δ1−θθφa2μ2γsρ+φ−θφ2/16r+δ1−θφμ2γ5s2θρ2+10s1−θθρφ+1−θF2/32r+δ1−θθφμ2γ5s2θρ2+10s1−θθρφ+1−θF2/32r+δ1−θθφg1−3s2θρ2+6s1−θθρφ+1−θF3/5s2θρ2+10s1−θθρφ+1−θF23s2θρ2+6s1−θθρφ+1−θF3/5s2θρ2+10s1−θθρφ+1−θF2g2−−2θsρ+φ−θφ2/5s2θρ2+10s1−θθρφ+1−θF2(45)F1=θ1+θφ2+4θρφ△+2ρ2△2,F2=θ5+3θφ2+16θρφ△+8ρ2△2,F3=θ3+5θφ2+16θρφ△+8ρ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Proposition 7.
Comparing the green advertising strategies under the financial support contract, the bilateral cooperative incentive strategies make both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BF>a1UF=a1NF and a2BF=a2UF>a2NF.Proof.
See the “Appendix.”
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NF and a2NF into equation (1) is given by(46)G∞NF=γs2u12+u22θρsρ+21−θφ+1−θ2μ12F1+μ221−θθφ216δr+δ1−θθφ.
The steady-state accumulation value of return rate under the unilateral cooperative green advertising promotion strategy scenario by insertinga1UF and a2UF into equation (1) is given by(47)G∞UF=γs4μ12+5μ22θρsρ+21−θφ+1−θF432δr+δ1−θθφ,F4=θ4μ121+θ+μ225+3θφ2+16μ12+μ22θρφ△+8μ12+μ22ρ2△2.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BF and a2BF into equation (1) is given by(48)G∞BF=μ12+μ22γ5s2θρ2+10s1−θθρφ+1−θF232δr+δ1−θθφ.Proposition 8.
Under the financial support contract, the bilateral cooperative incentive strategy can help the O2O CLSC have greater accumulated consumers’ environmental consciousness than others. It turns out thatG∞BF>G∞UF>G∞NF.Proof.
See the “Appendix.”Proposition 9.
Under financial support contract, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition8, it is easy to check that p1BF>p1UF>p1NF,p2BF>p2UF>p2NF, and ωBF>ωUF>ωNF.Corollary 5.
Under the financial support contract, there is a positive relationship between environmental consciousness level and channel pricing strategies.(49)∂p1∂G=θφ−ρ△4G>0,∂ωNF∂GNF=sρ+φ−ρ△4G>0,∂p2∂G=3sρ+3−θφ−2ρ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that, without affecting sales, all channel players can increase their pricing strategies and ultimately increase their profits; andφ>ρ△/θ tells that the consumer’s environmental consciousness is much greater than the joint effect between the residual value of returns and the consumer’s acceptance.Corollary 6.
Under financial support contract, it holds that (1) the optimal wholesale and offline pricing decisions always increase ins; (2) the offline channel sales and the manufacturer and retailer advertising investments are also increasing in s; (3) the online channel decision is not affected by s; (4) the online channel sales are decreasing in s.(50)∂p1∂s=0,∂p1∂s=ρG2>0,∂p2∂s=3ρG4>0,∂a1∂s=μ1γρsρ+φ−θφ4r+δ1−θφ>0,∂a2∂s=μ2γρsρ+φ−θφ8r+δ1−θφ>0.
The online pricing decision is not affected by the financial support contact. TheThe monetary reward points program would incentivize consumers to buy from the offline channel, which also takes away a few consumers from the manufacturer’s direct online channel. As the online sales decrease, this ultimately promotes the manufacturer to increase advertising investments to maintain sales. On the other side, as the advertising investments increase, all channel members have to increase price decisions to recoup their losses.Proposition 10.
Comparing the bilateral green advertising strategies under different contracts, the wholesale price contract makes both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BW>a1BF>a1BS and a2BW>a2BF>a2BS.Proof.
See the “Appendix.”
Under the wholesale price contract, the green advertising investments are higher than other contracts. Under revenue-sharing and financial support contracts, the manufacturer should transfer part of his profits to the retailer. The retailer invests less because the manufacturer determines the sharing and financial support values. Therefore, revenue-sharing contracts and financial support contracts lead to lower environmental performance.Proposition 11.
Comparing the bilateral accumulated consumers’ environmental consciousness under different contracts, the wholesale price contract makes the O2O CLSC have greater accumulated consumer environmental consciousness than others. It turns out thatG∞BW>G∞BF>G∞BS.Proof.
See the “Appendix.”
The green advertising strategies contribute to the accumulated consumer environmental consciousness. Higher (lower) consumer environmental consciousness means higher (lower) environmental performance.


## 4.3.1. A Noncooperative Game under a Financial Support Contract

This part considers the noncooperative green advertising strategy under financial support. The manufacturer’s objective function can be extended as(39)JM=Max∫0∞e−rtp1NF+△ρGNFγθp2NF−p1NF−sρθGNFφθ1−θ+ωNF+△ρGNFγGNF−γp2NF−p1NF−sρGNFφ1−θ−a1NF22dt,and the retailer’s objective function is (40)JR=Max∫0∞e−rtp2NF−ωNFγGNF−γp2NF−p1NF−sρGNFφ1−θ−a2NF22dt.


## 4.3.2. The Unilateral Cooperative Game under a Financial Support Contract

This part considers the unilateral cooperative green advertising strategy under the financial support contract. The manufacturer’s objective function in an infinite-time horizon O2O CLSC system can be rewritten as(41)JM=Max∫0∞e−rtp1UF+△ρGUFγθp2UF−p1UF−sρθGUFφθ1−θ+ωUF+△ρGUFγGUF−γp2UF−p1UF−sρGUFφ1−θ−a1UF22−gUF2a2UF2dt,and the retailer’s objective function is(42)JR=Max∫0∞e−rtp2UF−ωUFγGUF−γp2UF−p1UF−sρGUFφ1−θ−1−gUF2a2UF2dt.


## 4.3.3. A Bilateral Cooperative Game under a Financial Support Contract

This part considers the bilateral cooperative green advertising strategy under the financial support contract. The manufacturer’s objective function can be rewritten as(43)JM=Max∫0∞e−rtp1BF+△ρGBFγθp2BF−p1BF−sρθGBFφθ1−θ+ωBF+△ρGBFγGBF−γp2BF−p1BF−sρGBFφ1−θ−1−g2BF2a1BF2−g1BF2a2BF2dt,and the retailer’s objective function is(44)JR=Max∫0∞e−rtp2BF−ωBFγGBF−γp2BF−p1BF−sρGBFφ1−θ−1−g1BF2a2BF2−g2BF2a1BF2dt.All the optimal equilibrium outcomes can be obtained by solving the above objective functions, and all the equilibrium solutions are summarized in Table7.Table 7
The optimal solutions under a financial support contract.
NoncooperativeUnilateral cooperativeBilateral cooperativeωsρ+φ−ρ△GNF/2sρ+φ−ρ△GUF/2sρ+φ−ρ△GBF/2p1θφ−ρ△GNF/2θφ−ρ△GUF/2θφ−ρ△GBF/2p23sρ+3−θφ−2ρ△GNF/43sρ+3−θφ−2ρ△GUF/43sρ+3−θφ−2ρ△GBF/4a1μ1γs2θρ2+2s1−θθρφ+1−θF1/8r+δ1−θθφμ1γs2θρ2+2s1−θθρφ+1−θF1/8r+δ1−θθφμ1γ5s2θρ2+10s1−θθρφ2+1−θF/32r+δ1−θθφa2μ2γsρ+φ−θφ2/16r+δ1−θφμ2γ5s2θρ2+10s1−θθρφ+1−θF2/32r+δ1−θθφμ2γ5s2θρ2+10s1−θθρφ+1−θF2/32r+δ1−θθφg1−3s2θρ2+6s1−θθρφ+1−θF3/5s2θρ2+10s1−θθρφ+1−θF23s2θρ2+6s1−θθρφ+1−θF3/5s2θρ2+10s1−θθρφ+1−θF2g2−−2θsρ+φ−θφ2/5s2θρ2+10s1−θθρφ+1−θF2(45)F1=θ1+θφ2+4θρφ△+2ρ2△2,F2=θ5+3θφ2+16θρφ△+8ρ2△2,F3=θ3+5θφ2+16θρφ△+8ρ2△2.The results show that the optimal pricing strategies are consumers’ state-dependent environmental consciousness stock, and the optimal advertising strategies and subsidy rate are consumers’ state-independent environmental consciousness stock, which means that players’ pricing decisions are relevant to the accumulated consumers’ environmental consciousness. On the other hand, players’ green advertising strategies and subsidy rates are irrelevant to consumers’ environmental consciousness.Proof.
See the “Appendix.”Proposition 7.
Comparing the green advertising strategies under the financial support contract, the bilateral cooperative incentive strategies make both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BF>a1UF=a1NF and a2BF=a2UF>a2NF.Proof.
See the “Appendix.”
The steady-state accumulation value of return rate under a noncooperative green advertising promotion strategy scenario by insertinga1NF and a2NF into equation (1) is given by(46)G∞NF=γs2u12+u22θρsρ+21−θφ+1−θ2μ12F1+μ221−θθφ216δr+δ1−θθφ.
The steady-state accumulation value of return rate under the unilateral cooperative green advertising promotion strategy scenario by insertinga1UF and a2UF into equation (1) is given by(47)G∞UF=γs4μ12+5μ22θρsρ+21−θφ+1−θF432δr+δ1−θθφ,F4=θ4μ121+θ+μ225+3θφ2+16μ12+μ22θρφ△+8μ12+μ22ρ2△2.
The steady-state accumulation value of return rate under a bilateral cooperative green advertising promotion strategy scenario by insertinga1BF and a2BF into equation (1) is given by(48)G∞BF=μ12+μ22γ5s2θρ2+10s1−θθρφ+1−θF232δr+δ1−θθφ.Proposition 8.
Under the financial support contract, the bilateral cooperative incentive strategy can help the O2O CLSC have greater accumulated consumers’ environmental consciousness than others. It turns out thatG∞BF>G∞UF>G∞NF.Proof.
See the “Appendix.”Proposition 9.
Under financial support contract, without affecting sales, implementing a bilateral cooperative incentive strategy helps all channel members increase their pricing decisions to increase their profits.
Through Proposition8, it is easy to check that p1BF>p1UF>p1NF,p2BF>p2UF>p2NF, and ωBF>ωUF>ωNF.Corollary 5.
Under the financial support contract, there is a positive relationship between environmental consciousness level and channel pricing strategies.(49)∂p1∂G=θφ−ρ△4G>0,∂ωNF∂GNF=sρ+φ−ρ△4G>0,∂p2∂G=3sρ+3−θφ−2ρ△8G>0.
The previous corollary guarantees that channel pricing strategies have a positive relationship with environmental consciousness, which means that, without affecting sales, all channel players can increase their pricing strategies and ultimately increase their profits; andφ>ρ△/θ tells that the consumer’s environmental consciousness is much greater than the joint effect between the residual value of returns and the consumer’s acceptance.Corollary 6.
Under financial support contract, it holds that (1) the optimal wholesale and offline pricing decisions always increase ins; (2) the offline channel sales and the manufacturer and retailer advertising investments are also increasing in s; (3) the online channel decision is not affected by s; (4) the online channel sales are decreasing in s.(50)∂p1∂s=0,∂p1∂s=ρG2>0,∂p2∂s=3ρG4>0,∂a1∂s=μ1γρsρ+φ−θφ4r+δ1−θφ>0,∂a2∂s=μ2γρsρ+φ−θφ8r+δ1−θφ>0.
The online pricing decision is not affected by the financial support contact. TheThe monetary reward points program would incentivize consumers to buy from the offline channel, which also takes away a few consumers from the manufacturer’s direct online channel. As the online sales decrease, this ultimately promotes the manufacturer to increase advertising investments to maintain sales. On the other side, as the advertising investments increase, all channel members have to increase price decisions to recoup their losses.Proposition 10.
Comparing the bilateral green advertising strategies under different contracts, the wholesale price contract makes both the manufacturer and the retailer invest more in green advertising efforts. It results in thata1BW>a1BF>a1BS and a2BW>a2BF>a2BS.Proof.
See the “Appendix.”
Under the wholesale price contract, the green advertising investments are higher than other contracts. Under revenue-sharing and financial support contracts, the manufacturer should transfer part of his profits to the retailer. The retailer invests less because the manufacturer determines the sharing and financial support values. Therefore, revenue-sharing contracts and financial support contracts lead to lower environmental performance.Proposition 11.
Comparing the bilateral accumulated consumers’ environmental consciousness under different contracts, the wholesale price contract makes the O2O CLSC have greater accumulated consumer environmental consciousness than others. It turns out thatG∞BW>G∞BF>G∞BS.Proof.
See the “Appendix.”
The green advertising strategies contribute to the accumulated consumer environmental consciousness. Higher (lower) consumer environmental consciousness means higher (lower) environmental performance.


## 5. Numerical Analysis

A numerical example is used to identify the optimal environmental, economic, and social performance of the O2O CLSC under three different contracts. The parameter values are set according to the literature (De Giovanni [44], De Giovanni [22], and Yan et al. [40]) as follows: γ=0.05,μ1=0.5,μ2=0.6,φ=0.8,δ=0.1,r=0.1,Δ=0.3,ρ=0.8, ε=0.4, and s=0.2.


### 5.1. Sensitivity Analysis

According to Tables5–7, the optimal numerical decisions and optimal profits performance under different contracts in the O2O CLSC systems are shown in Table 8. From Table 8, as expected, the bilateral cooperative green advertising strategy achieves the best performance; meanwhile, the noncooperative strategy leads to the worst performance. The profits under the financial support contract are always highest, followed by the wholesale price contract. Profit under revenue-sharing contracts is always the lowest. This means that the bilateral green advertising cooperative incentive strategy under the financial support contract always makes both the manufacturer and the retailer invest more in green advertising efforts, improves channel profits, and reduces conflict, leading to a higher environmental and economic performance. From Table 8, it is also the result that the offline channel always offers a higher price than the online channel. As the product acceptance index θ increases, without affecting sales, the online channel always offers higher prices under different incentive strategies. The offline channel pricing decisions decrease under the wholesale contract, revenue-sharing contract, and financial support contract.Table 8
Optimal analysis with respect to parameterθ changes.
ContractIncrease in the value of the product acceptance indexθ0.59,0.95Optimal decisionsNoncooperative strategyUnilateral cooperative strategyBilateral cooperative strategyWholesale price contractp1[0.0533, 0.1857][0.0804, 0.1857][0.0810, 0.1858]p2[0.1666, 0.2071][0.2511, 0.2071][0.2527, 0.2073]ω[0.1288, 0.2000][0.1942, 0.2000][0.1956, 0.2001]a1[0.0386, 0.0417][0.0386, 0.0417][0.0399, 0.0418]a2[0.0030, 0.0003][0.0479, 0.0502][0.0479, 0.0502]G∞[0.2118, 0.5103][0.4812, 0.5103][0.4876, 0.5111]πR[0.0021, 0.0002][0.0021, 0.0002][0.0037, 0.0004]πM[0.0253, 0.0639][0.0562, 0.0639][0.0572, 0.0640]Revenue-sharing contractp1[0.0779, 0.2053][0.1045, 0.2053][0.1078, 0.2095]p2[0.1949, 0.2253][0.2613, 0.2253][0.2156, 0.2299]ω[0.1559, 0.2186][0.2091, 0.2186][0.2696, 0.2231]a1[0.0302, 0.0342][0.0302, 0.0342][0.0354, 0.0379]a2[0.0124, 0.0089][0.0425, 0.0455][0.0425, 0.0455]G∞[0.2260, 0.4443][0.4064, 0.4443][0.4324, 0.4630]πR[0.0086, 0.0112][0.0142, 0.0112][0.0134, 0.0103]πM[0.0227, 0.0466][0.0382, 0.0466][0.0414, 0.0492]Buy-back contractp1[0.0597, 0.2206][0.0874, 0.2206][0.0885, 0.2236]p2[0.2483, 0.3479][0.3633, 0.3479][0.3678, 0.3526]ω[0.1854, 0.3055][0.2713, 0.3055][0.2747, 0.3096]a1[0.0449, 0.0567][0.0449, 0.0567][0.0477, 0.0606]a2[0.0068, 0.0093][0.0572, 0.0727][0.0572, 0.0727]G∞[0.2653, 0.7203][0.5682, 0.7203][0.5824, 0.7399]πR[0.0057, 0.0022][0.0052, 0.0022][0.0099, 0.0173]πM[0.0375, 0.1243][0.0775, 0.1243][0.0801, 0.1288]Table8 also shows that the offline channel always offers a higher price than the online channel. As the product acceptance index θ increases, without affecting sales, the online channel always offers higher prices under different incentive strategies. The offline channel pricing decisions decrease under the wholesale contract, revenue-sharing contract, and financial support contract.Figure2 illustrates that as the online product is more compatible with the offline product, the online pricing decisions increase under the wholesale contract, revenue-sharing contract, and financial support contract (Figure 2(a)). In contrast, the offline pricing decreases under the wholesale contract, revenue-sharing contract, and financial support contract (Figure 2(b)). More consumers would prefer to buy from the online channel, which leads the offline channel to decrease price. When the acceptance index is low, revenue-sharing contracts’ pricing decisions are always higher than others, followed by the financial support contract. Pricing decisions under wholesale price contract are always the lowest. However, as the online product is more compatible with the offline product, the pricing decisions with financial support contracts are always the highest. The reason is that the consumers prefer to buy the product from an offline channel to get more money rewards, which incentivizes the online channel to increase the price to recoup the losses (Figure 2(a)). Under the financial support contract, more and more consumers would prefer to buy the products from the offline channel, which ultimately promotes the offline channel’s price (Figure 2(b)).Figure 2
Price comparison with respect toθ. (a) θvs.p1. (b) θvs.p2.
(a)(b)Figure3 shows that the contract incentive mechanism does not translate to increasing online channel sales; conversely, it will decrease sales. The rationale is that as product compatibility with online sales increases, online channel members increase their pricing decisions, leading to customer defection. The online sales decrease under the wholesale price contract contracts, financial support contracts, and revenue-sharing contracts. The online channel sales under wholesale price contracts are always higher than others. The reason is that both online channel and offline channel members invest more in green advertising, which means that the accumulated consumer’s environmental consciousness is much more than others. However, the consumer’s purpose in society is to maximize the sum of utility, and the consumer would like to choose an offline channel product to get more money reward points, even though the accumulated consumer’s environmental consciousness determines the sales (Figure 3(a)). Wholesale price contracts and revenue-sharing contract incentive mechanisms do not lead to higher retailer sales. The offline channel demand under the financial support contract is the best incentive strategy to achieve more sales, which means the financial support contract is a more valuable strategy for offline channel members. The rationale is that consumers could get more utility from the offline money reward point incentive strategy, increasing the offline channel sales and ultimately increasing the profits (Figure 3(b)).Figure 3
Demand comparison with respect toθ. (a) θvs.D1. (b) θvs.D2.
(a)(b)Figure4 illustrates the retailer’s profit decrease under wholesale contract, revenue-sharing contract, and financial support contract. As the acceptance index increases, there is indifference to buying the product offline or online. However, customers could get more convenience to buy the product from the online channel, which ultimately decreases the retailer profits and increases the online profits. Additionally, under the financial support contract, the consumer could get more utility from the offline money reward point incentive strategy, leading to the fact that the retailer sales first decrease and then increase (Figure 4(a)). As the acceptance index increases, the profits increase for both the manufacturer and the whole O2O channel under the wholesale contract, revenue-sharing contract, and financial support contract. The profits under the financial support contract are always higher than others, followed by the wholesale price contract. Profit under revenue-sharing contract is always the lowest, which means that the financial support contract incentive mechanism is the best strategy to mitigate channel conflict and ultimately promote to achieve Pareto improvement (Figures 4(b) and 4(c)).Figure 4
Profit comparison with respect toθ. (a) θvs.VR. (b) θvs.VM. (c) θvs.V.
(a)(b)(c)Figure5 illustrates the acceptance index, θ, and return residual value, Δ, in a specific range: Δ∈0,0.3 and θ∈0.59,0.95. As the acceptance index and return residual value increase, the retailer favors implementing a financial support contract incentive mechanism to increase profit. This means that the financial support contract incentive mechanism is the best value strategy to alleviate channel competition and conflict, improve member performance, and ultimately promote Pareto improvemnet.Figure 5
Comparison of O2O CLSC’s profits under wholesale price contract (green), revenue-sharing contract (red), and financial support contract (blue). (a) Comparison of retailer’s profits. (b) Comparison of manufacturer’s profits. (c) Comparison of whole channel’s profits.
(a)(b)(c)


### 5.2. Case Study

In order to test the validation of the model in this research, a real case study is illustrated in this part. The model is conducted on the real data from a Chinese battery company shown in Table9, located in Fujian province, south of China. The company happily shared its residual value of returns for every end-of-use products data, $0.0107. Using the company’s residual value and calculating the model, the optimal decisions are shown in Table 6. In Table 6, it is clear that the optimal profit is $0.0152 per battery, whereas that of the model proposed by this research is $0.0297 per battery. This model incentive strategy always makes both the manufacturer and retailer invest more in green advertising efforts, ultimately leading to a higher environmental and economic performance.Table 9
Optimal decisions for case study.
ProfitsSteady-state goodwillGreen advertising effortThe proposed modelManufacturer0.02970.35950.0294Retailer0.00610.35950.0353Real caseManufacturer0.01520.25170.0198Retailer0.00110.25170.0253


## 5.1. Sensitivity Analysis

According to Tables5–7, the optimal numerical decisions and optimal profits performance under different contracts in the O2O CLSC systems are shown in Table 8. From Table 8, as expected, the bilateral cooperative green advertising strategy achieves the best performance; meanwhile, the noncooperative strategy leads to the worst performance. The profits under the financial support contract are always highest, followed by the wholesale price contract. Profit under revenue-sharing contracts is always the lowest. This means that the bilateral green advertising cooperative incentive strategy under the financial support contract always makes both the manufacturer and the retailer invest more in green advertising efforts, improves channel profits, and reduces conflict, leading to a higher environmental and economic performance. From Table 8, it is also the result that the offline channel always offers a higher price than the online channel. As the product acceptance index θ increases, without affecting sales, the online channel always offers higher prices under different incentive strategies. The offline channel pricing decisions decrease under the wholesale contract, revenue-sharing contract, and financial support contract.Table 8
Optimal analysis with respect to parameterθ changes.
ContractIncrease in the value of the product acceptance indexθ0.59,0.95Optimal decisionsNoncooperative strategyUnilateral cooperative strategyBilateral cooperative strategyWholesale price contractp1[0.0533, 0.1857][0.0804, 0.1857][0.0810, 0.1858]p2[0.1666, 0.2071][0.2511, 0.2071][0.2527, 0.2073]ω[0.1288, 0.2000][0.1942, 0.2000][0.1956, 0.2001]a1[0.0386, 0.0417][0.0386, 0.0417][0.0399, 0.0418]a2[0.0030, 0.0003][0.0479, 0.0502][0.0479, 0.0502]G∞[0.2118, 0.5103][0.4812, 0.5103][0.4876, 0.5111]πR[0.0021, 0.0002][0.0021, 0.0002][0.0037, 0.0004]πM[0.0253, 0.0639][0.0562, 0.0639][0.0572, 0.0640]Revenue-sharing contractp1[0.0779, 0.2053][0.1045, 0.2053][0.1078, 0.2095]p2[0.1949, 0.2253][0.2613, 0.2253][0.2156, 0.2299]ω[0.1559, 0.2186][0.2091, 0.2186][0.2696, 0.2231]a1[0.0302, 0.0342][0.0302, 0.0342][0.0354, 0.0379]a2[0.0124, 0.0089][0.0425, 0.0455][0.0425, 0.0455]G∞[0.2260, 0.4443][0.4064, 0.4443][0.4324, 0.4630]πR[0.0086, 0.0112][0.0142, 0.0112][0.0134, 0.0103]πM[0.0227, 0.0466][0.0382, 0.0466][0.0414, 0.0492]Buy-back contractp1[0.0597, 0.2206][0.0874, 0.2206][0.0885, 0.2236]p2[0.2483, 0.3479][0.3633, 0.3479][0.3678, 0.3526]ω[0.1854, 0.3055][0.2713, 0.3055][0.2747, 0.3096]a1[0.0449, 0.0567][0.0449, 0.0567][0.0477, 0.0606]a2[0.0068, 0.0093][0.0572, 0.0727][0.0572, 0.0727]G∞[0.2653, 0.7203][0.5682, 0.7203][0.5824, 0.7399]πR[0.0057, 0.0022][0.0052, 0.0022][0.0099, 0.0173]πM[0.0375, 0.1243][0.0775, 0.1243][0.0801, 0.1288]Table8 also shows that the offline channel always offers a higher price than the online channel. As the product acceptance index θ increases, without affecting sales, the online channel always offers higher prices under different incentive strategies. The offline channel pricing decisions decrease under the wholesale contract, revenue-sharing contract, and financial support contract.Figure2 illustrates that as the online product is more compatible with the offline product, the online pricing decisions increase under the wholesale contract, revenue-sharing contract, and financial support contract (Figure 2(a)). In contrast, the offline pricing decreases under the wholesale contract, revenue-sharing contract, and financial support contract (Figure 2(b)). More consumers would prefer to buy from the online channel, which leads the offline channel to decrease price. When the acceptance index is low, revenue-sharing contracts’ pricing decisions are always higher than others, followed by the financial support contract. Pricing decisions under wholesale price contract are always the lowest. However, as the online product is more compatible with the offline product, the pricing decisions with financial support contracts are always the highest. The reason is that the consumers prefer to buy the product from an offline channel to get more money rewards, which incentivizes the online channel to increase the price to recoup the losses (Figure 2(a)). Under the financial support contract, more and more consumers would prefer to buy the products from the offline channel, which ultimately promotes the offline channel’s price (Figure 2(b)).Figure 2
Price comparison with respect toθ. (a) θvs.p1. (b) θvs.p2.
(a)(b)Figure3 shows that the contract incentive mechanism does not translate to increasing online channel sales; conversely, it will decrease sales. The rationale is that as product compatibility with online sales increases, online channel members increase their pricing decisions, leading to customer defection. The online sales decrease under the wholesale price contract contracts, financial support contracts, and revenue-sharing contracts. The online channel sales under wholesale price contracts are always higher than others. The reason is that both online channel and offline channel members invest more in green advertising, which means that the accumulated consumer’s environmental consciousness is much more than others. However, the consumer’s purpose in society is to maximize the sum of utility, and the consumer would like to choose an offline channel product to get more money reward points, even though the accumulated consumer’s environmental consciousness determines the sales (Figure 3(a)). Wholesale price contracts and revenue-sharing contract incentive mechanisms do not lead to higher retailer sales. The offline channel demand under the financial support contract is the best incentive strategy to achieve more sales, which means the financial support contract is a more valuable strategy for offline channel members. The rationale is that consumers could get more utility from the offline money reward point incentive strategy, increasing the offline channel sales and ultimately increasing the profits (Figure 3(b)).Figure 3
Demand comparison with respect toθ. (a) θvs.D1. (b) θvs.D2.
(a)(b)Figure4 illustrates the retailer’s profit decrease under wholesale contract, revenue-sharing contract, and financial support contract. As the acceptance index increases, there is indifference to buying the product offline or online. However, customers could get more convenience to buy the product from the online channel, which ultimately decreases the retailer profits and increases the online profits. Additionally, under the financial support contract, the consumer could get more utility from the offline money reward point incentive strategy, leading to the fact that the retailer sales first decrease and then increase (Figure 4(a)). As the acceptance index increases, the profits increase for both the manufacturer and the whole O2O channel under the wholesale contract, revenue-sharing contract, and financial support contract. The profits under the financial support contract are always higher than others, followed by the wholesale price contract. Profit under revenue-sharing contract is always the lowest, which means that the financial support contract incentive mechanism is the best strategy to mitigate channel conflict and ultimately promote to achieve Pareto improvement (Figures 4(b) and 4(c)).Figure 4
Profit comparison with respect toθ. (a) θvs.VR. (b) θvs.VM. (c) θvs.V.
(a)(b)(c)Figure5 illustrates the acceptance index, θ, and return residual value, Δ, in a specific range: Δ∈0,0.3 and θ∈0.59,0.95. As the acceptance index and return residual value increase, the retailer favors implementing a financial support contract incentive mechanism to increase profit. This means that the financial support contract incentive mechanism is the best value strategy to alleviate channel competition and conflict, improve member performance, and ultimately promote Pareto improvemnet.Figure 5
Comparison of O2O CLSC’s profits under wholesale price contract (green), revenue-sharing contract (red), and financial support contract (blue). (a) Comparison of retailer’s profits. (b) Comparison of manufacturer’s profits. (c) Comparison of whole channel’s profits.
(a)(b)(c)


## 5.2. Case Study

In order to test the validation of the model in this research, a real case study is illustrated in this part. The model is conducted on the real data from a Chinese battery company shown in Table9, located in Fujian province, south of China. The company happily shared its residual value of returns for every end-of-use products data, $0.0107. Using the company’s residual value and calculating the model, the optimal decisions are shown in Table 6. In Table 6, it is clear that the optimal profit is $0.0152 per battery, whereas that of the model proposed by this research is $0.0297 per battery. This model incentive strategy always makes both the manufacturer and retailer invest more in green advertising efforts, ultimately leading to a higher environmental and economic performance.Table 9
Optimal decisions for case study.
ProfitsSteady-state goodwillGreen advertising effortThe proposed modelManufacturer0.02970.35950.0294Retailer0.00610.35950.0353Real caseManufacturer0.01520.25170.0198Retailer0.00110.25170.0253


## 6. Conclusion and Managerial Insights

With the rapid development of online technology, many manufacturers are introducing the O2O e-commerce model to redesign their supply chain channels, leading to serious channel competition and conflict. Meanwhile, due to the resource shortage and environmental degradation, more and more business enterprises and academia recognize the importance of sustainable development and turn their attention to remanufacturing products. Prior research in product remanufacturing was mostly based on one manufacturer and one retailer; researchers did not consider the offline to online channels. Moreover, previous studies did not compare the coordination of green advertising strategies under different contracts. Therefore, this research extended the coordination and contracts incentive mechanism in the manufacturer’s direct online and offline O2O CLSC. This research has significant contributions in academic and business managerial implications. The following questions are addressed in this study: (1) What are the O2O closed-loop supply chain’s optimal pricing policies? (2) How does each contract affect the O2O closed-loop supply chain members’ decisions on pricing and advertising policies? (3) How does advertising cooperative promotion strategy impact the whole O2O closed-loop supply chain? (4) Does cooperative advertising strategy improve channel profits and reduce conflict? Therefore, to answer these questions, this paper studies three different advertising decisions (noncooperative, unilateral cooperative, and bilateral cooperative) under three different contracts (wholesale price contract, revenue-sharing contract, and financial support contract) in a dynamic O2O CLSC.The results show that the bilateral green advertising cooperative incentive strategy makes both the manufacturer and the retailer invest more in green advertising efforts, followed by unilateral and noncooperative games. This means that bilateral green advertising cooperative strategy improves channel profits and reduces conflict, leading to a higher environmental and economic performance. The profits under the financial support contract are consistently highest, followed by the wholesale price contract. Profit under revenue-sharing contracts is always the lowest. This means that the financial support contract incentive mechanism is the best strategy to mitigate channel conflict and ultimately promote Pareto improvement. The theoretical and academic findings can help business managers to make effective investments and improve their environmental and economic performance.Additionally, the offline channel always offers a higher price than the online channel. As the product acceptance indexθ increases, without affecting sales, the online channel always offers higher prices under different incentive strategies. As the online product is more compatible with the offline product, the online pricing decisions always increase. Conversely, offline pricing always decreases. As the online product is more compatible with the offline product, the pricing decisions with financial support contracts are always the highest.


### 6.1. Managerial Insights

This research provides valuable managerial insights to business managers in the O2O CLSC, and the most important issues are listed as follows:(1)
With the wide use of advanced technology, online shopping has significantly changed consumers’ purchase patterns. Many manufacturers are involved in introducing mobile orders to redesign their supply chain channels. This study focuses on both online and offline channels. Meanwhile, the retailer collecting end-of-use products is also considered. Therefore, managers can indeed benefit from the concept of O2O CLSC.(2)
Managers can use bilateral green advertising cooperative strategy under financial support contract incentive mechanism to improve channel profits and reduce conflict, leading to Pareto improvement and achieving the challenge of environmental, economic, and social performance.(3)
As Table6 shows, it is clear that the manufacturer could benefit from using the model from this research.Due to the limitations of this research, future research can be extended in several directions. For instance, this work suggested that all channel members’ sales be of identical products. It should be more interesting to introduce retailer sales as a private label to the consumers. Another competitive retailer can be introduced in the model. Besides, the difference between manufactured and remanufactured products should be considered an extension to this work. Therefore, quality uncertainty can also be introduced in the model. Furthermore, empirical analysis can also test out analytical models and ultimately help business managers improve managerial and operational decision-making. Relative data can be obtained from the government’s statistics. The model proposed in this research can also be extended to several scenarios such as service decisions, inventory policies, and lead time decisions in the O2O CLSC.


## 6.1. Managerial Insights

This research provides valuable managerial insights to business managers in the O2O CLSC, and the most important issues are listed as follows:(1)
With the wide use of advanced technology, online shopping has significantly changed consumers’ purchase patterns. Many manufacturers are involved in introducing mobile orders to redesign their supply chain channels. This study focuses on both online and offline channels. Meanwhile, the retailer collecting end-of-use products is also considered. Therefore, managers can indeed benefit from the concept of O2O CLSC.(2)
Managers can use bilateral green advertising cooperative strategy under financial support contract incentive mechanism to improve channel profits and reduce conflict, leading to Pareto improvement and achieving the challenge of environmental, economic, and social performance.(3)
As Table6 shows, it is clear that the manufacturer could benefit from using the model from this research.Due to the limitations of this research, future research can be extended in several directions. For instance, this work suggested that all channel members’ sales be of identical products. It should be more interesting to introduce retailer sales as a private label to the consumers. Another competitive retailer can be introduced in the model. Besides, the difference between manufactured and remanufactured products should be considered an extension to this work. Therefore, quality uncertainty can also be introduced in the model. Furthermore, empirical analysis can also test out analytical models and ultimately help business managers improve managerial and operational decision-making. Relative data can be obtained from the government’s statistics. The model proposed in this research can also be extended to several scenarios such as service decisions, inventory policies, and lead time decisions in the O2O CLSC.



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*Source: 2767766-2022-04-28.xml*