Corporate Social Responsibility Spillover and Competition Effects on the Food Industry

This paper examines the spillover and competition effects of corporate social responsibility (CSR) with duopoly competition. In employing the assumption that firm CSR increases consumer willingness to pay for the firm's products while consumer willingness to pay decreases for non‐CSR firm products, some interesting conclusions are achieved. First, CSR spillover effects increase CSR firm outputs and prices, while CSR spillover has the opposite effect on competitors. Second, CSR spillover decreases total outputs and total social welfare levels. Third, competition effects increase CSR expenditures, and CSR firms' CSR policies are the most robust when non‐CSR firms assume a leading position. It is found that total outputs and consumer utilities are highest when CSR firm acts as leader, while the relationships of social welfare among different cases are ambiguous depending on product substitution and spillover effects.     

Corporate Social Responsibility and International Competition: A Welfare Analysis

This paper examines the welfare implications of corporate social responsibility (CSR) in international markets under imperfect competition. Based on a stylized model of an import‐competing duopolistic market, we show the feasibility of moving toward tariff reductions when both domestic and foreign firms launch CSR initiatives in that their payoffs include not only individual profits, but also the benefits of consumers. For the case where the foreign exporter unilaterally adopts the consumer‐oriented CSR as a strategy, there is a rent‐shifting effect because the foreign firm's payoff increases whereas the domestic firm's profit decreases. In response, the importing country's government raises its tariff on the foreign product. If, instead, the domestic firm adopts the CSR strategy unilaterally, the rent‐shifting effect disappears and both the competing firms’ payoffs increase. We further identify the conditions under which the CSR initiatives of the firms constitute the dominant strategy, leading to a Pareto efficient outcome at which the firms’ payoffs, consumer surplus, and social welfare are at their maximum levels.     

Corporate social responsibility and strategic relationships

We analyze a delegation game relevant to the conduct of corporate social responsibility (CSR) in which the firm’s owner offers the manager a contract consisting of firm profit and social welfare. We derive three results that distinctly differ from existing findings. First, CSR decisions are strategic complements for firms. Second, with simultaneous CSR decisions, the equilibrium price is equal to marginal cost, despite the fact that firms compete in a Cournot duopoly. Finally, with sequential CSR decisions, unlike the follower firm, the leader firm never exhibits CSR. However, the follower firm can enjoy a profit equal to that derived by the leader in a Cournot–Stackelberg game.     

Information sharing about a demand shock

This paper examines two questions in asymmetric Cournot and Bertrand oligopoly with a demand shock. Under which conditions is information sharing a subgame-perfect equilibrium? What is the welfare effect when firms are better off? Given these questions, the normal assumptions in the earlier literature can be relaxed in three ways: demand functions can be asymmetric; a demand shock can affect firms differently; distributions of the demand shock and information signals can be arbitrary. Under these general assumptions, the answer to the first question is: every firm's response to the demand shock is stronger when all firms have perfect information than when one firm does so alone; the answer to the second question is: social welfare increases in Cournot competition, and consumer surplus decreases in Bertrand competition.     

Strategic corporate social responsibility,imperfect competition,and market concentration

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.     

Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

Focusing on foreign ownership in the private firm, we examine the Cournot-Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot-Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot-Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.     

Corporate social responsibility and strategic trade policy: An endogenous timing game and its policy implications

This study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyses strategic trade policy towards a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm's leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm's leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm's leadership yields the highest welfare otherwise. In an endogenous‐timing game, we show that a simultaneous‐move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm's leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviours between the domestic and foreign firms can increase welfare.     

Regulating a duopoly by a Pretend-but-Perform Mechanism

In a linear duopoly, participants are required to declare their costs under a Pretend—but—Perform Mechanism (PPM) which enforces accordance of performance with pretended (declared) cost.Specifically, under the PPM, each firm's output in reaction to rival output is to maximize profit according to declared cost. Compared with the Cournot solution before PPM Regulation, Nash implementation of the PPM induces a Cournot solution, among the make—believe firms, giving greater industry output and efficiency along with increased consumer surplus even after compensating the duopolists for decreased profits, except in a trivial case which — educatively — thruthful declarations are confined.     

Quantity competition vs. price competition under optimal subsidy in a mixed oligopoly

This paper reconsiders the literature on the irrelevance of privatization in mixed markets within which both quantity and price competition are investigated under product differentiation. By allowing for partially privatization of a state-controlled firm, we explore competition under different timings of firms' moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, irrespective of the mode of competition, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum in the considered scenarios, providing an ordering which highlights the subsidy equivalence between Cournot (Bertrand) private leadership and simultaneous Bertrand (Cournot) under duopoly, and the dominance of the former in oligopoly.     

PRICE AND QUANTITY COMPETITION IN A UNIONISED MIXED DUOPOLY: THE CASES OF SUBSTITUTES AND COMPLEMENTS*

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when unions are present. For the case of a unionised mixed duopoly, there exists a dominant strategy only for the public firm that chooses Bertrand competition irrespective of whether the goods are substitutes or complements; there is no dominant strategy for a private firm. Thus, we show that regardless of the nature of goods, social welfare under Bertrand competition is always determined in equilibrium, wherein Bertrand competition entails higher social welfare than Cournot competition. Moreover, our main results hold irrespective of the nature of goods, with the exception that when a sufficiently large parameter of complements is employed, the ranking of a private firm's profit is not reversed, which is in contrast to the standard findings.     

Competition and confidentiality: Signaling quality in a duopoly when there is universal private information

We model non-cooperative signaling by two firms that compete over a continuum of consumers, assuming each consumer has private information about the intensity of her preferences for the firms' respective products and each firm has private information about its own product's quality. We characterize a symmetric separating equilibrium in which each firm's price reveals its respective product quality. We show that the equilibrium prices, the difference between those prices, the associated outputs, and profits are all increasing functions of the ex ante probability of high safety. If horizontal product differentiation is sufficiently great then equilibrium prices and profits are higher under incomplete information about quality than if quality were commonly known. Thus, while signaling imposes a distortionary loss on a monopolist using price to signal quality, duopolists may benefit from the distortion as it can reduce competition. Finally, average quality is lower since signaling quality redistributes demand towards low-quality firms.     

Dynamic efficiency of Cournot and Bertrand competition: input versus output spillovers

We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D that generates input spillovers. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers’ surplus.     

Bundling strategy and product differentiation

The existing literature shows that a decrease in the degree of substitutability increases a monopoly’s incentive to bundle. This paper in addition takes into account competition in the second product market and then re-examines how intra-brand and inter-brand product differentiations affect the incentive to bundle. In order to formally examine the above conjectures, this research builds up a two-firm, two-product model in which product 1 (monopoly product) is produced only by the bundling firm and product 2 (competing product) is produced by both firms. The analysis shows that under both Bertrand and Cournot competitions the incentive to bundle does not necessarily increase with the degree of intra-brand differentiation, while it strictly decreases with the degree of inter-brand differentiation. Moreover, under Bertrand competition bundling always decreases consumer surplus, but may increase the competitor’s profit and social surplus. Under Cournot competition bundling always reduces the opponent’s profit and social welfare, but may increase consumer surplus.     

BERTRAND Vs. COURNOT COMPETITION WITH UPSTREAM FIRM INVESTMENT

This paper compares Bertrand and Cournot competition in a vertical structure in which the upstream firm sets the input price and makes R&D investments. We show that from the downstream firms’ point of view, Cournot competition has the advantage of a more monopolistic effect, leading to the setting of a higher price, but has the disadvantage of inducing a lower incentive for the upstream firm to invest. On the other hand, Bertrand competition has the advantage of providing a greater incentive for the upstream firm to invest but has the disadvantage of a more competitive effect, leading to the setting of a lower price. Our main findings are as follows. First, R&D investment level is greater under Bertrand competition than under Cournot competition. Second, from the standpoint of the upstream firm and industry, Bertrand competition is more efficient than Cournot competition. Third, from the standpoint of the downstream firms, Bertrand competition is more efficient than Cournot when investment is sufficiently efficient and products are sufficiently differentiated.     

Employee share ownership in a unionised duopoly

Profit sharing schemes have been analysed assuming Cournot competition and decentralised wage negotiations, and it has been found that firms share profits in equilibrium. This paper analyses a different remuneration system: employee share ownership. We find that whether firms choose to share ownership or not depends on both the type of competition in the product market and the way in which workers organise to negotiate wages. If wage setting is decentralised, under duopolistic Cournot competition both firms share ownership. If wage setting is centralised, only one firm shares ownership if the degree to which goods are substitutes takes an intermediate value; otherwise, the two firms share ownership. In this case, if the union sets the same wage for all workers neither firm shares ownership. Therefore, centralised wage setting discourages share ownership. Finally, under Bertrand competition neither firm shares ownership regardless of how workers are organised to negotiate wages.     

Profitability of corporate social responsibility in network industries

The present paper shows that, when firms compete in a non-cooperative way on the level of corporate social responsibility (CSR) in network industries, the conventional result of the prisoner’s dilemma structure of the game in standard industries—i.e. to have social concerns is the Nash equilibrium, but it is harmful for firms’ profits—vanishes and, for sufficiently intense network externalities, the equilibrium in which both firms have social concerns is more profitable than simple profit-seeking. Moreover, we show that—when firms cooperate in choosing the profit-maximising level of social concerns—a profit-maximising CSR level does exist, provided that network effects are sufficiently strong. Therefore, in network industries, firms may obtain higher profits engaging in—cooperatively as well as non-cooperatively—CSR activities, showing that firms’ social concerns may be motivated by the owners’ selfish behaviour. Finally, a counter-intuitive result as regards consumer’s surplus and social welfare is obtained: those are always higher under competitive than cooperative choice of CSR because the level of CSR activities is higher in the former case. However, given that firms gain their largest profits with the cooperative choice of CSR, a Pareto-superior outcome is not reached.     

Corporate social responsibility and tax avoidance

We theoretically analyse the relationship between corporate social responsibility (CSR) and tax avoidance of an oligopolistic firm. The firm maximizes a weighted sum of profits and a CSR objective that depends on output and the firm's contribution to public good provision, that is, tax payments. Making one CSR element more important induces the firm to adhere less to the other and to reduce tax avoidance. Hence, simultaneously a substitutive and a complementary relationship between CSR and tax avoidance can be observed. Therefore, using composite indicators of CSR prevents an empirical identification of this linkage. Moreover, if tax avoidance declines, CSR activities will increase. Consequently, the overall link between CSR and tax avoidance is theoretically ambiguous.     

STRATEGIC LOBBYING BY POTENTIAL INDUSTRY ENTRANTS*

A firm which lobbies government for a change in policy, say an import tariff, can increase its profits in two ways. First, the policy can increase the profits of all firms in the industry. This effect therefore involves a free-rider problem. Second, a firm's lobbying expenditures may signal other firms about its costs and interests. For example, a firm with low marginal costs may profit much from an import ban. Other firms which see that this firm expects to profit much from the ban may decide not to enter the industry. This may further increase the low-cost firm's profits.     

Location of public and private firms under endogenous timing of choices

This paper studies the choices of locations in a mixed duopoly when production costs are endogenously determined and the public firm maximizes a weighted sum of social surplus and its profits. We find that the locations of the two firms are decided simultaneously when the weight of the public firm’s profits in its objective function is high enough. When this is not the case we find that one firm (not always the public firm but sometimes also the private one) behaves as a leader in the choice of location and location decisions are made sequentially. Moreover, in equilibrium, the production cost of the public firm is never higher than that of the private firm.     

Socially responsible firms and endogenous choice of strategic incentives

In this paper we are analyzing a mixed quantity-setting duopoly consisting of a socially concerned firm and a profit-maximizing firm. The socially concerned firm considers one group of stakeholders in its objective function and maximizes its profit plus a share of consumer surplus. Both firms have the option to hire a manager who determines the production quantity on behalf of the firm's owner. We find that in the subgame-perfect equilibrium of this game both firms hire a manager and delegate the production choice. If the unit production costs of the firms are similar, then the socially concerned firm has a higher market share and even higher profit. Interestingly, we observe that the relationship between the share of consumer surplus taken into account by the socially concerned firm and its profit is non-monotonic. As the share increases, the socially concerned firm's profit first increases and then decreases. The conclusion is that it pays off to take stakeholder interests into account, but not too much.