The Socially Responsible Choice in a Duopolistic Market: a Dynamic Model of "Ethical Product" Differentiation

Becchetti LeonardoPalestini ArsenSolferino NazariaTessitore M. Elisabetta
CEIS Research Paper
The increasing attention of profit maximising corporations to corporate social responsibility (CSR) is a new stylized fact of the contemporary economic environment. In our theoretical analysis we model CSR adoption as the optimal response of a profit maximising firm to the competition of a not for profit corporate pioneer in presence of a continuum of consumers with heterogeneous preferences toward the social and environmental features of the final good. CSR adoption implies a trade-off since, on the one side, it raises production costs but, on the other side, it leads to the accumulation of ethical capital. We investigate conditions under which the profit maximising firm switches from price to price and CSR competition by comparing monopoly and duopoly equilibria and their consequences on aggregate social responsibility and consumers welfare. Our findings provide a theoretical background for competition between profit maximising incumbents and not for profit entrants in markets such as fair trade, organic food, ethical banking and ethical finance.
Number: 268
Keywords: Mixed Duopoly; Horizontal Differentiation; Corporate Social Responsibility
JEL codes: L33; L21; L13
Volume: 11
Issue: 5
Date: Friday, March 29, 2013
Revision Date: Friday, March 29, 2013