How does corporate altruism affect oligopolistic competition?

Abstract

This paper examines firms' corporate social responsibility (CSR) competition in a duopoly model with product differentiation. Firms exhibit different degrees of altruism, which is a characteristic positively valued by consumers; however, as each firm's degree of altruism (type) is private information, using CSR activities to signal the types becomes an additional tool for competition. We analyze a game where firms first signal about their types and then compete in standard price competition. Consumers observe the firms' CSR activities and infer their degree of altruism. Firms then simultaneously set prices, and consumers purchase goods from one firm or the other. In equilibrium, CSR is determined by the consumers' valuation of corporate altruism and the degree of product differentiation. The model examines the interaction between these two determinants, finding that more competition in the market (less product differentiation) might be detrimental to CSR when consumers' concern about firms' altruism is high enough.