Monopoly with corporate social responsibility, product differentiation, and environmental R&D: Implications for economic, environmental, and social sustainability

Abstract

Our research topic is the monopolist with corporate social responsibility in the presence of product differentiation and environmental R&D. This project lies at the frontier between environmental economics and industrial organization. The model uses a three-stage game-theoretic framework. We model a monopolist with corporate social responsibility, product differentiation, and environmental R&D setting in a three-stage game; in the first stage, the regulator determines the emission tax to maximize welfare; in the second stage, the monopolist determines R&D to maximize its objective function; in the third stage, the monopolist determines outputs to maximize its objective function. This study develops a numerical simulation model and aims to explore the implications for economic, environmental, and social sustainability when the monopolist is characterized by corporate social responsibility (CSR), product differentiation, and environmental R&D. Specifically, we investigate the effects on profit, R&D, environmental damage, consumer surplus, and welfare when the parameters of R&D technology, degree of social responsibility, and product differentiation are changed. We find that: (1) increasing R&D technology parameter enhances welfare in terms of higher consumer surplus and lower damage, while also leading to increases in R&D and decreases in profit; (2) increasing the degree of social responsibility increases R&D and welfare in terms of higher consumer surplus and profit, but also increases the damage; and (3) increasing product differentiation increases profit, R&D, and welfare; it also increases the damage but decreases consumer surplus.