Optimal CSR and Pricing Decisions With Risk-Averse Providers in a Competitive Shipping System

Abstract

Logistics shipping is one of the critical activities in business operation. Facing fierce competition and high uncertainty of demands, shipping service providers often take risk-averse (RA) behavior when making decisions. In addition, due to the great impact on environment and society, some logistics shipping companies start engaging in corporate social responsibility (CSR). This article investigates the competition of two RA shipping service providers with one of them committing CSR effort. The conditional-value-at-risk is used to gauge the risk attitude of two players. The aim is to determine the optimal CSR effort and pricing decisions for two players under uncertain demand (UD). The problem is formulated as a Stackelberg game model and the optimal decisions are obtained analytically. The effects of key factors, such as risk attitude, competitive intensity, cost coefficient of CSR effort on the economic outcomes, and social outcomes are analyzed in great detail. Results show that it is possible that one player's CSR effort could benefit both players to achieve a win-win situation. On the other hand, it is also possible that adopting CSR activities may reduce the total social welfare of the system in some situations. This article is among the first to tackle the optimal decision problem for competing logistics shipping providers considering CSR commitment and RA behavior simultaneously. Findings in this article can offer managerial insights for logistics shipping companies and the government into decision making and policy making.