The eco-design of upstream suppliers can reduce the environmental impact from the production process for downstream customers. To analyze the effect of suppliers' eco-design on the economic benefits of up-downstream supply chain and the mechanisms, this study constructed a master-slave game theory model for a supplier and a manufacturer. Based on this game theory model, this study comparatively analyzes the effects on raw material/part prices, retail product prices, sale volume, revenue, and eco-design effort level under three conditions (no eco-design, decentralized decision-making with eco-design, centralized decision-making with eco-design). And to further analyze the effect of eco-design costs on the optimal solution, this article takes the supply chain of tire production as an example. This analysis could provide suggestions for the suppliers and manufacturers to develop and improve their eco-design. The main results are as follows: the supplier eco-design is beneficial to improving the overall economic benefits for suppliers and manufacturers under certain conditions, and the range in which a supplier is willing to implement eco-design in a decentralized decision-making situation is wider than that in a centralized decision-making situation; when a supplier implements an eco-design, it will transfer part of the cost to the manufacturer by raising the unit raw material/parts prices. Meanwhile, the manufacturer can reduce the production cost when the benefit of eco-design is more than the increased purchasing price, and they can decrease the retail price to expand the sales volume. Hence, consumers will benefit from lower prices. Thus, it is a multi-win situation among the suppliers, manufacturers, and consumers.
Keywords: eco-design; game theory; green supply chain; supply chain coordination.