Corporate Social Responsibility and Product Differentiation

Abstract

We explore how the source of motivations for Corporate Social Responsibility (CSR) affects market outcomes. The first source is consumer-led; firms practice CSR because consumers value it. If one firm practices CSR it achieves a competitive advantage. If all firms practice CSR, market shares and price remain similar but profits fall, resulting in a Prisoner’s Dilemma. The other source is firm-led CSR that also generates prices, market shares, and revenue that are the same as when neither firms nor consumers care about CSR case, but firms allocate profit to equilibrate its marginal valuation of CSR and financial reward to owners.