Abstract
This study focuses on how an upstream supplier signals the private information of its product quality with corporate social responsibility (CSR) choices to a downstream retailer and uninformed consumers in the final market. We build a signaling model to: capture the strategic interactions among the supplier, the retailer, and the final consumers in the supply chain; characterize completely the set of all separating perfect Bayesian equilibriums (PBEs); and finally, select a unique equilibrium that satisfies the intuitive criterion for exploring some comparative statics. The equilibrium results show that under some technical conditions: (1) a set of moderate levels of CSR conduct signal the upstream supplier’s high quality in the sense of separating PBEs; (2) the unique separating PBE satisfying the intuitive criterion is the one with the lowest CSR level that separates a high-quality supplier from a low-quality supplier; (3) the lowest CSR level decreases in the proportion of informed consumers and the low-quality supplier’s marginal CSR cost, but is independent of the high-quality supplier’s marginal CSR cost; (4) the profits of the high-quality supplier increase in proportion to the number of informed consumers and the low-quality supplier’s marginal cost CSR, but decrease in proportion to the high-quality supplier’s marginal CSR cost. Managerial insights are also discussed.
Highlights
Corporate social responsibility (CSR) consists of economic, legal, and ethical responsibilities, as well as voluntary or philanthropic responsibilities, which are guided by an organization’s discretion, as opposed to legal or more explicit requirements [1,2,3]
We show that a set of CSR levels exists by which the supplier conveys the true product quality information to the retailer and uninformed consumers in the sense of separating perfect Bayesian equilibriums (PBEs)
To illustrate how the intuitive criterion requires more reasonable posterior beliefs, we take into account a separating PBE with which is on an off-equilibrium a CSR level tsH∗ ∈ path
Summary
Corporate social responsibility (CSR) consists of economic, legal, and ethical responsibilities, as well as voluntary or philanthropic responsibilities, which are guided by an organization’s discretion, as opposed to legal or more explicit requirements [1,2,3]. We need to answer the following key questions: (1) is there any level of CSR conduct that an upstream firm can choose to reveal its true level of product quality to its downstream retailer and final consumers? We show that a set of CSR levels exists by which the supplier conveys the true product quality information to the retailer and uninformed consumers in the sense of separating perfect Bayesian equilibriums (PBEs).
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