Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab

43 Pages Posted: 17 Apr 2019 Last revised: 17 Nov 2019

See all articles by Francisco Gomez-Martinez

Francisco Gomez-Martinez

Universidad Carlos III Madrid

Sander Onderstal

University of Amsterdam; Tinbergen Institute

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2019

Abstract

Market competition can erode socially responsible behavior, suggesting that allowing collusive agreements regarding corporate social responsibility (CSR) may promote public interest objectives such as fair trade and environmental standards. We study this idea in a vertical product differentiation model, extended with firms that partly internalize external effects, and laboratory experiments. Firms choose between offering a ‘fair’ and an ‘unfair’ product that imposes a negative externality on a third party. The treatment is to allow firms to coordinate on the type of good they sell, while remaining in price competition. We find that CSR collusion diminishes product variety and polarizes. More of the same product type, fair and unfair, is offered, without a significant impact on the fraction of fair goods traded. Instead, third-party preferences are the more important driver of socially responsible behavior. We highlight implications for competition policy, where cartels may be exempted on sustainability grounds.

Keywords: Collusion, Corporate social responsibility, Public interest, Laboratory experiment, Competition policy

JEL Classification: C92, D03, D62, L41, M14

Suggested Citation

Gomez-Martinez, Francisco and Onderstal, Sander and Schinkel, Maarten Pieter, Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab (April 16, 2019). Amsterdam Law School Research Paper No. 2019-13, Available at SSRN: https://ssrn.com/abstract=3372917 or http://dx.doi.org/10.2139/ssrn.3372917

Francisco Gomez-Martinez (Contact Author)

Universidad Carlos III Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain
+34694481107 (Phone)

HOME PAGE: http://www.eco.uc3m.es/personal/fragomez/

Sander Onderstal

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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