Coordinated Effects of Corporate Social Responsibility

Abstract

This paper analyzes the coordinated effects of corporate social responsibility (CSR) in a setting where firms take into account in their objective function the consumer’s welfare in addition to their profits, produce differentiated products, and compete in quantities. We consider a symmetric case, where firms have the same level of CSR and an asymmetric case, where firms have different levels of CSR. Our results confirm that assigning a positive weight to consumer surplus makes collusion harder to sustain, as shown in the literature. However, for a sufficiently high level of CSR, collusion sustainability is actually increasing in the degree of product substitutability when firms are CSR-symmetric. When firms are CSR-asymmetric, collusion sustainability is increasing in the degree of product differentiation if products are complements. Furthermore, we show that collusion may be welfare-improving when firms adopt a socially responsible behavior, which provides an interesting background to competition authorities when analysing cartel cases.