Abstract
The diffusion of corporate social responsibility is investigated by employing a hybrid evolutionary game where a firm chooses between being either socially responsible, which implies devoting a fraction of its profit to social projects, or non-socially responsible. Consumers prize socially responsible companies by paying a higher reservation price for their products. The hybrid evolutionary framework is characterized by a quantity dynamics that describes the oligopolistic competition given firms’ belief about the composition of the industry. At regular intervals of time, this belief is endogenously updated by a retrospective comparison on the profits obtained and on the basis of an evolutionary mechanism. Assuming that firms are Nash players, that is at each instant of time they produce the Nash equilibrium-in-belief quantity, the investigation of the model reveals that an industry homogeneously populated by socially responsible firms is a stable equilibrium when the fraction of profits earmarked for socially responsible activities is sufficiently limited. However, the extra marginal profits of a socially responsible firm are reduced when the number of competitors increases, impeding the diffusion of socially responsible companies. In particular, the trade-off between a higher net margin on sales obtained by socially responsible firms and a lower level of production that reduces the profit gap between a socially responsible firm and the rest of the market shows that an increased size of the industry favors mixed oligopolies. Moreover, imposing the hypothesis of neutrality of CSR activities, the model reveals that being socially responsible is an evolutionarily stable strategy for firms and is convenient for customers. Relaxing the hypothesis of Nash players by introducing boundedly rational firms that decide their level of production according to a partial adjustment toward the best reply, the robustness of these results is confirmed.
Highlights
The inclusion of social strategies in the main corporate objectives is a widely debated issue among academics and leading experts
When imposing the hypothesis of neutrality of corporate social responsibility (CSR) activities, according to which the competitive advantage of being a socially responsible company is offset by the higher costs associated with social activities, see in particular Williams et al (2006) and Piga (2002), the model reveals that being socially responsible is an evolutionarily stable strategy for firms and is convenient for customers
Introducing boundedly rational firms in the form of a partial adjustment dynamics toward the best response with naive expectations as in (22), and assuming that firms update their belief about the composition of the industry after periods of length s = 3, as in (23), we observe that the inner Bayesian– Cournot Nash equilibrium, the red curve in Fig. 9, loses stability at higher values of the fraction of profits devoted to charity and periodic or chaotic attractors arise
Summary
The inclusion of social strategies in the main corporate objectives is a widely debated issue among academics and leading experts. Compared to Kopel et al (2014) and Kopel and Lamantia (2018), the current model introduces an interpretation of CSR more focused on charity actions (“corporate philanthropy”) or socially responsible projects (such as investments devoted to reducing the carbon footprint) and proposes a different objective function for CSR firms with respect to the mentioned contributions. Keeping constant the fraction of profits devoted to CSR activities, an increased number of competitors impacts on the trade-off between a higher net margin on sales obtained by socially responsible firms and a lower level of individual production that reduces the profit gap among firms of different types.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
