Corporate social responsibility in a game-theoretic context

Abstract

Using a simple Cournot duopoly model with differentiated products, this work studies the firms’ strategic choice of whether to adopt Corporate Social Responsibility (CSR) rules. The proposed game-theoretic approach shows that, depending on the degree of product differentiation and firms’ social concern, different equilibria arise: (1) all firms in the industry follow CSR rules, (2) all firms are profit-maximising (PM), (3) asymmetric equilibria are present (one CSR firm, one PM firm), and (4) multiple symmetric equilibria are present. Under Bertrand competition, universal PM is the unique equilibrium in which the social welfare is the least desirable: this implies that, in contrast to the conventional wisdom, Bertrand may appear as welfare dominated by Cournot. This work can help to explain the widely observed phenomenon, in the real world, of different industries in which firms’ CSR behaviours are more or less commonly widespread.