Entry of Socially-Responsible Retailers and Its Implications on For-Profit Retailers

57 Pages Posted: 26 Oct 2020 Last revised: 29 Nov 2021

See all articles by C. Gizem Korpeoglu

C. Gizem Korpeoglu

Eindhoven University of Technology

Ersin Körpeoğlu

University College London - School of Management

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management

Jiayi Joey Yu

Fudan University - School of Management

Date Written: August 30, 2020

Abstract

To serve the local interests, more socially-responsible retailers (e.g., food cooperatives) are entering the market with a social commitment: (1) donate a proportion of its profit to non-profit organizations that serve the local community; or (2) maximize its sales quantity to support local economy and create local jobs. How should these socially-responsible retailers determine their entry strategy in the presence of incumbent (for-profit) retailers, and how should those incumbent retailers respond?

In this paper, we present a game-theoretic model to analyze the competition between an entrant (socially-responsible) retailer and an incumbent (for-profit) retailer in a market comprising heterogeneous consumers with different annual consumption rates and social benefit levels. We examine the socially-responsible retailer's pricing strategy and entry conditions, the impact of the socially-responsible retailer's entry on the incumbent retailer's profit, and the conditions under which the incumbent retailer should deter the socially-responsible retailer's entry. Our analytical results indicate that a socially-responsible retailer can afford to enter the market only when its fixed annual operating cost is below a certain threshold. Upon entry, it is optimal for social retailer to set a membership fee and a member-only discount to attract at least those consumers with high consumption rate. We also show that the socially-responsible retailer's entry is detrimental for the incumbent retailer. However, interestingly, even if the incumbent retailer can profitably deter the socially-responsible retailer's entry, it is actually optimal for the incumbent to tolerate it when the socially-responsible retailer's annual fixed operating cost is below a certain threshold. These structural results are robust to whether consumption rates are price-dependent.

Keywords: Socially responsible retailers, market entry, competition, non-profit operations

JEL Classification: M19

Suggested Citation

Korpeoglu, C. Gizem and Körpeoğlu, Ersin and Tang, Christopher S. and Yu, Jiayi, Entry of Socially-Responsible Retailers and Its Implications on For-Profit Retailers (August 30, 2020). Available at SSRN: https://ssrn.com/abstract=3683380 or http://dx.doi.org/10.2139/ssrn.3683380

C. Gizem Korpeoglu

Eindhoven University of Technology ( email )

PO Box 513
Eindhoven, 5600 MB
Netherlands

Ersin Körpeoğlu

University College London - School of Management ( email )

1 Canada Square Canary Wharf
London, E14 5AA
United Kingdom

Christopher S. Tang

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Jiayi Yu (Contact Author)

Fudan University - School of Management ( email )

670 Guoshun Road
Shanghai, Shanghai 200433
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
171
Abstract Views
834
rank
222,602
PlumX Metrics