Abstract
In a duopoly network industry with decentralised union wage setting, this paper studies the impact of the firms’ engagement in consumer-friendly corporate social responsibility (CSR) on profitability and welfare. It is shown that, regardless of whether the wage setting occurs prior to or after the choice of the CSR levels, being a CSR-type firm rather than a simple profit-maximiser can lead to larger profits and thus higher welfare for their owners/stakeholders. However, the welfare analysis reveals that there is always conflict of interest between the firms’ owners on the one side and consumers, unions, and society on the other side, with respect for the timing of the decision about CSR relative to that of the wage setting.
Highlights
Today, network goods, whose utility increases with the number of users who consume the goods, are of extreme relevance
In a duopoly network industry with decentralised union wage setting, this paper studies the impact of the firms’ engagement in consumer-friendly corporate social responsibility (CSR) on profitability and welfare
In a Cournot duopoly industry characterised by firms producing homogeneous network goods and with a decentralised union wage setting, this paper has investigated the effect of the firms’ adoption of consumer-friendly CSR activities on wages, profitability, the welfare of each component of society, and the overall social welfare
Summary
Network goods, whose utility increases with the number of users who consume the goods, are of extreme relevance. The presence of CSR can impact the union wage setting for companies and their profitability: network externalities are an exogenous market feature; CSR activities can be a firm’s choice variable strategically used to enhance its performance. On the other hand, the CSR levels are always lower in such a case, and the choice to engage in CSR is less likely the more wage-aggressive unions are In this case, the owners’ engagement in social responsibility raises the welfare of owners, consumers, and workers, which leads again to a Pareto-superior outcome. The noteworthy finding is that, in a network industry, under unionisation, and regardless of whether the wage setting occurs prior to or after the choice of the CSR levels, being a CSR-type firm can lead to larger profits and higher welfare for their owners/stakeholders. The last section sums up our findings and outlines areas for future research
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