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

30 Pages Posted: 30 Mar 2013

See all articles by Leonardo Becchetti

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics

Arsen Palestini

University of Bologna - Department of Economics

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: March 28, 2013

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.

Keywords: Mixed Duopoly, Horizontal Differentiation, Corporate Social Responsability

JEL Classification: L33, L21, L13

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 (March 28, 2013). CEIS Working Paper No. 268, Available at SSRN: https://ssrn.com/abstract=2240975 or http://dx.doi.org/10.2139/ssrn.2240975

Leonardo Becchetti (Contact Author)

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

Via Columbia, 2
I-00133 Rome
Italy

Arsen Palestini

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
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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