Evolutionary Competition in a Mixed Market with Socially Concerned Firms

34 Pages Posted: 10 Nov 2013

See all articles by Michael Kopel

Michael Kopel

University of Graz

Fabio G. Lamantia

University of Calabria - Department of Economics, Statistics and Finance; University of Manchester

Ferenc Szidarovszky

University of Arizona - Department of Systems & Industrial Engineering (SIE)

Date Written: November 8, 2013

Abstract

In this paper we study an oligopoly market where profit-maximizing firms and socially concerned firms compete in quantities. Confronting remarks by Milton Friedman and Gary Becker, we are using an evolutionary setting to investigate the endogenous choice of the proper objective of business firms and the influence of product differentiation on the long run survival of firms which pursue non-profit motives. We find that firms which consider a combination of profit and consumer welfare can indeed have larger market shares and profits than their profit-maximizing rivals. One insight is that it might pay off for shareholders to consider stakeholder welfare, but that the level of social concern should not be too high. Based on a strategy’s profitability, we consider asynchronous evolutionary updating with firms selecting Nash quantities or choosing best replies to the expected market quantity. Here we observe that the consumers’ willingness to pay a price premium for products is crucial for the long run survival of socially concerned firms. Depending on the degrees of product differentiation and social concern, long run outcomes consist either of both types of firms or only one type of firm. If the firms’ propensity to switch between a social or a profit-maximizing strategy is sufficiently large, steady states are unstable and even complicated dynamics can occur.

Keywords: Corporate social responsibility, mixed oligopoly, evolutionary dynamics

JEL Classification: L13, L21, M14, C73

Suggested Citation

Kopel, Michael and Lamantia, Fabio G. and Szidarovszky, Ferenc, Evolutionary Competition in a Mixed Market with Socially Concerned Firms (November 8, 2013). Available at SSRN: https://ssrn.com/abstract=2352156 or http://dx.doi.org/10.2139/ssrn.2352156

Michael Kopel (Contact Author)

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Fabio G. Lamantia

University of Calabria - Department of Economics, Statistics and Finance ( email )

Via P. Bucci
Rende, CS I-87036
Italy

HOME PAGE: http://fabiolamantia.altervista.org/

University of Manchester ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Ferenc Szidarovszky

University of Arizona - Department of Systems & Industrial Engineering (SIE) ( email )

Tucson, AZ
United States
520-621-6557 (Phone)

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