The Socially Responsible Choice in a Duopolistic Market: A Dynamic Model of 'Ethical Product' Differentiation

27 Pages Posted: 23 Dec 2012

See all articles by Leonardo Becchetti

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics

Arsen Palestini

MEMOTEF - Sapienza University of Rome

Nazaria Solferino

University of Rome Tor Vergata - Faculty of Economics

Maria Elisabetta Tessitore

University of Rome Tor Vergata

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2012

Abstract

The increasing attention of profit maximising corporations to corporate social responsibility (CSR) is a new stylized fact of the contemporary economic environment. In our theoretical analysis we model CSR adoption as the optimal response of a profit maximising firm to the competition of a not for profit corporate pioneer in presence of a continuum of consumers with heterogeneous preferences toward the social and environmental features of the final good. CSR adoption implies a trade-off since, on the one side, it raises production costs but, on the other side, it leads to the accumulation of ethical capital. We investigate conditions under which the profit maximising firm switches from price to price and CSR competition by comparing monopoly and duopoly equilibria and their consequences on aggregate social responsibility and consumers welfare. Our findings provide a theoretical background for competition between profit maximising incumbents and not for profit entrants in markets such as fair trade, organic food, ethical banking and ethical finance.

Suggested Citation

Becchetti, Leonardo and Palestini, Arsen and Solferino, Nazaria and Tessitore, Maria Elisabetta, The Socially Responsible Choice in a Duopolistic Market: A Dynamic Model of 'Ethical Product' Differentiation (December 20, 2012). Available at SSRN: https://ssrn.com/abstract=2192029 or http://dx.doi.org/10.2139/ssrn.2192029

Leonardo Becchetti (Contact Author)

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Arsen Palestini

MEMOTEF - Sapienza University of Rome ( email )

Via del Castro Laurenziano
Roma, Rome 00185
Italy

Nazaria Solferino

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Maria Elisabetta Tessitore

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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