Corporate social responsibility and the choice of price versus quantities

Abstract

This paper revisits the classic issue of comparison between price and quantity competition in the presence of Corporate Social Responsible (CSR) private firms. The results regarding CSR firms are in sharp contrast to the conventional wisdom regarding profit-seeking firms. In fact, profits can be larger under Cournot (resp. Bertrand) competition also when products are complements (resp. substitutes). Moreover, if the goods are substitutes, then the dominant strategy for each firm may be the choice of the price contract in the subgame perfect Nash equilibrium. Also, the dominant Bertrand strategy equilibrium when the goods are complements may be Pareto-inferior from the firms’ perspective. Finally, the cornerstone belief that Bertrand competition is more efficient than Cournot competition may also be reversed.