A location model for boycotting with an application to kosher certification

Abstract

We develop a one-sided location model to predict the ethical behavior of firms in a market with consumer boycotting. Consumers’ ethical level is distributed along a line segment and they purchase only at firms that conform to their ethical consciousness. Firms maximize profits by choosing their ethical level. To capture the boycotting phenomena we make two assumptions. First, that firms are driven by profits and not ethical considerations. Second, that if consumers deem a firm to be engaged in unethical activity, then they refuse to purchase from it even products that are not the result of this unethical behavior. We develop the profit-maximization necessary conditions for equilibrium and show that when consumers are uniformly distributed then the equilibrium – if it exists – is unique. We solve the model for the uniform distribution case and show that firms will distribute symmetrically – but not uniformly – around the center location. Additionally, we demonstrate how the effectiveness of boycotts diminishes as the number of firms increases. We apply the model to the issue of restaurant kosher certification in Israel. In our application, kosher-keeping customers are boycotting non-certified restaurants since they generally refuse to dine in these restaurants even menu items that are kosher. We derive the relationship between the percent of kosher-keeping consumers and the equilibrium number of certified restaurants. Using population and restaurant data from Israel’s eight largest cities we estimate the implied cost of certification and the relative purchasing power of kosher-keeping customers.