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Profitability of corporate social responsibility in network industries

Author

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  • Luciano Fanti
  • Domenico Buccella
Abstract
The present paper shows that, when firms compete in a noncooperative 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' profitsEô 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. Finally, a counterintuitive result as regards consumers 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. This also means that the non-cooperative choice of CSR not only achieves the largest profit but it is also Pareto-superior.

Suggested Citation

  • Luciano Fanti & Domenico Buccella, 2017. "Profitability of corporate social responsibility in network industries," Discussion Papers 2017/216, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    • Handle: RePEc:pie:dsedps:2017/216
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2017-216.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

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    3. Luciano Fanti & Domenico Buccella, 2023. "Convex costs and profitability of corporate social responsibility in network industries," Economics Bulletin, AccessEcon, vol. 43(2), pages 962-967.
    4. Leonard F. S. Wang & Domenico Buccella, 2023. "The Timing of Technology Adoption in Network Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(4), pages 367-392, June.
    5. Jine Qian & Qiang Gong & Leonard F.S. Wang, 2021. "Corporate social responsibility, loan commitment, and social welfare in network duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 952-960, June.
    6. Ohnishi, Kazuhiro, 2022. "Wage-rise contract and mixed Cournot duopoly competition with profit-maximizing and socially concerned firms," MPRA Paper 112536, University Library of Munich, Germany.
    7. Fanti, Luciano & Buccella, Domenico, 2018. "A note on the social responsibility in a bilateral monopoly," MPRA Paper 88162, University Library of Munich, Germany.
    8. Ohnishi, Kazuhiro, 2022. "Socially concerned duopolies with lifetime employment as a strategic commitment," MPRA Paper 111625, University Library of Munich, Germany.
    9. Chokri Aloui & Khaïreddine Jebsi, 2022. "Does corporate social responsibility solve the chicken‐and‐egg problem for a two‐sided platform?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3235-3256, October.
    10. Arturo Garcia & Mariel Leal & Sang-Ho Lee, 2021. "Competitive CSR in a strategic managerial delegation game with a multiproduct corporation," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(3), pages 301-330, September.
    11. Ding Chen & Leonard F. S. Wang & Ji Sun, 2023. "Does CSR influence privatization wave?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1088-1097, March.
    12. Mariana Cunha & Filipa Mota, 2020. "Coordinated Effects of Corporate Social Responsibility," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 617-641, December.
    13. Jumpei Hamamura & Vinay Ramani, 2023. "Social performance versus relative performance evaluation, asymmetric costs, and quantity competition under managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1706-1719, April.
    14. Bárcena-Ruiz, Juan Carlos & Garzón, María Begoña & Sagasta, Amagoia, 2023. "Environmental corporate social responsibility, R&D and disclosure of “green” innovation knowledge," Energy Economics, Elsevier, vol. 120(C).
    15. Hussain Bux & Zhe Zhang & Naveed Ahmad, 2020. "Promoting sustainability through corporate social responsibility implementation in the manufacturing industry: An empirical analysis of barriers using the ISM‐MICMAC approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(4), pages 1729-1748, July.
    16. Luca Gori & Luciano Fanti, 2024. "The co-determination decision game with consumption externalities," Theory and Decision, Springer, vol. 97(2), pages 219-259, September.
    17. Roni Budianto & Eko Suyono, 2020. "Corporate Social Responsibility and Factors Affecting It: An Empirical Evidence from the Indonesian Capital Market," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 239-253.
    18. Zhang, Qidi & Wang, Leonard F.S., 2022. "Corporate social responsibility, entry and optimal privatization in an international mixed market," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 14-24.
    19. Xubei Lian & Kai Zhang & Leonard F. S. Wang, 2023. "Managerial delegation, network externalities and loan commitment," Manchester School, University of Manchester, vol. 91(1), pages 37-54, January.
    20. Hsu, Bo-Xiang & Chen, Yi-Min, 2023. "The relationship between corporate social responsibility, external orientation, and environmental performance," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    21. Ohnishi, Kazuhiro, 2023. "Why firms should care for consumers: Complementary goods," MPRA Paper 117305, University Library of Munich, Germany.
    22. Luciano Fanti & Domenico Buccella, 2021. "Corporate social responsibility in unionised network industries," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(2), pages 235-262, June.
    23. Ohnishi, Kazuhiro, 2021. "Lifetime employment and reaction functions of socially concerned firms under quantity competition," MPRA Paper 110867, University Library of Munich, Germany.
    24. Laszlo Goerke & Nora Paulus, 2024. "Collective Bargaining about Corporate Social Responsibility," IAAEU Discussion Papers 202401, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    25. Lisa Planer-Friedrich & Marco Sahm, 2020. "Strategic corporate social responsibility, imperfect competition, and market concentration," Journal of Economics, Springer, vol. 129(1), pages 79-101, January.

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    More about this item

    Keywords

    CSR; network effects; duopoly.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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