Strategic corporate social responsibility, imperfect competition, and market concentration

Abstract

We examine the strategic use of corporate social responsibility (CSR) in imperfectly competitive markets. Before firms decide upon supply, they choose a level of CSR which determines the weight they put on consumer surplus in their objective function. First, we consider Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Finally, we show that CSR levels decrease as the degree of product heterogeneity increases in Cournot competition and are zero in Bertrand Competition.