Transportation and economies of scale in recycling low-value materials

This study investigates the economic incentive‐drivers used in various configurations in green supply chains. The configurations of competitive suppliers and integrated transportation are studied for recycled materials with low economic value but high environmental impact. Arguments are embodied in a competitive game that manifests interactions among competing manufacturers, suppliers of virgin materials, suppliers of recycled materials, and the government. Because of market size and technology limitation, long hauling to few remote treatment facilities is observed in practice. Demand‐dependent transportation efficiency arisen from economies of scale thus affects the equilibrium states in the game of this recycling system. Managerial insights are provided to encourage the use of low‐value recycled materials. A tax‐subsidy system is conditionally effective when using recycled materials maintains quality. When quality becomes compromised by mixing recycled materials, we find that integrating suppliers of recycled materials with those of virgin materials can make the tax‐subsidy system effective again.