Sander Onderstal - Can Collusion Support Corporate Social Responsibility? - REBEW3 22.06.20
Channel: University of Reading Seminars
Date: 2020-06-25

Competition has been argued to erode socially responsible behavior in markets, suggesting that allowing collusive agreements regarding corporate social responsibility (CSR) may promote public interest objectives. We study this idea in a vertical product differentiation model, extended with firms partly internalizing external effects, and in laboratory experiments. Firms choose between offering a ‘fair’ and an ‘unfair’ good to consumers. When the unfair good is traded, a negative externality is imposed on a third party. We vary whether or not the firms are allowed to coordinate on the type of good they sell, while remaining in price competition. We find that the opportunity to coordinate polarizes: more of the same good, fair or unfair, is offered in coordination. CSR coordination has no significant impact on the fraction of fair goods traded, average market prices, producer surplus, and consumer surplus. Third-party preferences are a powerful predictor for both consumer and firm behavior. Our findings suggest that both consumer and managerial values are more important drivers of socially responsible behavior than opportunities for firms to coordinate their CSR activities.