Mixed Industry Outcomes in Oligopoly Markets with Socially Concerned Firms

Abstract

In this paper we study the long run evolution of a mixed oligopoly market where profit-maximizing firms and socially concerned firms compete in quantities. We consider an evolutionary setting based on payoff-monotone selection dynamics with N-firm matching which captures the endogenous profit-maximizing choice of the business objective of firms. We argue that in long run outcomes where both types of firms coexist the McWilliams-Siegel-neutrality result necessarily holds. We contrast the outcomes with predictions derived by employing the concept of coalition stability. First, we show that overall the two stability concepts predict the same ranges for the level of social concern which yield mixed market outcomes. Additionally, coalition stability allows predictions about particular coalitions on subintervals of these ranges. Second, our analysis reveals that a medium level of social concern is preferable in terms of long run survival if firms select a social strategy. Third, there is a non-monotonic influence of the competitiveness of the industry measured by the number of firms and the long run survival. In particular, if a social strategy entails higher marginal production costs, a social strategy is more effective if the number of firms is not too high. Third and finally, although in most cases the presence of socially concerned firms is welfare-enhancing, we demonstrate that in the case of associated higher marginal costs a market which consists of socially concerned firms might be less preferable in terms of welfare than a market with just profit-maximing firms.