Abstract
The present paper shows that, when firms compete in a non-cooperative way on the level of corporate social responsibility (CSR) in network industries, the conventional result of the prisoner’s dilemma structure of the game in standard industries—i.e. to have social concerns is the Nash equilibrium, but it is harmful for firms’ profits—vanishes and, for sufficiently intense network externalities, the equilibrium in which both firms have social concerns is more profitable than simple profit-seeking. Moreover, we show that—when firms cooperate in choosing the profit-maximising level of social concerns—a profit-maximising CSR level does exist, provided that network effects are sufficiently strong. Therefore, in network industries, firms may obtain higher profits engaging in—cooperatively as well as non-cooperatively—CSR activities, showing that firms’ social concerns may be motivated by the owners’ selfish behaviour. Finally, a counter-intuitive result as regards consumer’s surplus and social welfare is obtained: those are always higher under competitive than cooperative choice of CSR because the level of CSR activities is higher in the former case. However, given that firms gain their largest profits with the cooperative choice of CSR, a Pareto-superior outcome is not reached.
Highlights
Corporate social responsibility (CSR) is a growing feature in several industries
1 − 2kj + kj2 ki(kj) = 3 − 2n − kj and at the equilibrium of the first stage the CSR level k that is chosen by each individual firm is given by ki 17 − 20n + 4n2 is positive and real for n
Provided that the network effects are sufficiently strong, it is shown that when firms cooperatively select a joint profit-maximising level of social concerns there is a profit-maximising positive level of CSR activities
Summary
Corporate social responsibility (CSR) is a growing feature in several industries. As some scholars have recently noted (e.g. Kopel and Brand 2012; Becchetti et al 2016; Fanti and Buccella 2017a, b) and the specialised documentation such as KPMG surveys (2005, 2011, 2013, 2016a) reveals, an impressive as well as constantly increasing share of companies adopts CSR reporting: while in 2005, only to mention a few, 32% of US companies, 71% of UK companies and 90% of Japanese companies adopted CSR, in 2011 about 95% of the 250 world largest companies are reporting CSR activities and, in 2013, 71% of 4100 companies surveyed in 41 countries shows CSR activities. The choice of modelling the firms’ CSR behaviour as caring for profits and for consumers’ surplus is the most frequent in the literature (Goering 2007, 2008, 2012, 2014; Lambertini and Tampieri 2012, 2015; Brand and Grothe 2013, 2015, only to mention a few); we are aware that there are CSR activities which pertain to the welfare of stakeholders, such as workers, business partners, citizens and the environment, which are different from the consumers of the product. As regards social welfare, when the intensity of the network externalities is sufficiently low, the non-cooperative choice of CSR enhances, as expected, consumer surplus and social welfare; the adoption of CSR reduces profits with respect to the case of pure profitseeking behaviour. On the other hand, when the network externalities are sufficiently intense, consumer surplus and social welfare and firms’ profits—under both cooperative and non-cooperative regimes of choice of the CSR level—become larger than those under pure profit-seeking behaviour.
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