Corporate social responsibility,durable‐goods and firm profitability

Utilizing a two‐period durable‐goods framework, we show that in uncommitted sales markets a firm may earn higher profits as it increases its level of corporate social responsibility (CSR). We find that this occurs even though CSR has no direct impact other than increasing the durable‐goods firm's manufacturing costs. We show that in sales markets, CSR may allow the firm to credibly commit itself to lower production in the future. This, in turn, can enhance their profits even though the CSR activities are costly and provide no direct demand or marketing benefit in our model. This is important because it provides another, hereto unexplored, strategic rationale for the willingness of profit‐maximizing firms to undertake costly CSR activities. Copyright © 2010 John Wiley & Sons, Ltd.