Social responsibility and R&D investments: Implications for a retailer and competitive manufacturers

Abstract

<p style='text-indent:20px;'>Social responsibility has become an important issue, especially for large retailers that expect to combine seeking profitability with performing social responsibility. However, it still remains unknown how a retailer's social responsibility impacts competitive manufacturers' cost-reducing R & D investments. To this end, this paper examines the effect of social responsibility that is employed by one retailer who procures differentiated products from two competitive manufacturers and resells them to end consumers. It turns out that although the retailer's social responsibility always stimulates the manufacturers' R & D investments, it increases (decreases) the retailer's own profit just when it remains low (high). When the retailer endogenously chooses social responsibility, I find that the fiercer competition between the two manufacturers discourages the retailer to focus on social responsibility. Finally, it shows that the retailer can make use of social responsibility to improve not only its own profit, but also each manufacturer's profit, consumer surplus and social welfare.</p>