Strategic (Corporate) Social Responsibility

Corporate Social Responsibility (CSR) has become a common concern for many firms as well as their customers. The term refers to all social and environmentally friendly activities of a firm beyond its legal requirements. This dissertation focuses on the strategic use of (corporate) social responsibility by firms and individuals and its economic implications. In chapters 2,3, and 4, Marco Sahm and I investigate CSR in a theoretical framework. We model CSR as a weight on consumer surplus in firms' objective function. The general decision structure is the same in all three chapters. A firm first strategically chooses the CSR level which maximizes its profit and then it maximizes the resulting objective function in order to choose its output quantity. We solve by backward induction. In chapter 2, we examine the strategic use of CSR in imperfectly competitive markets. First, we consider Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Finally, we show that CSR levels decrease as the degree of product heterogeneity increases in Cournot competition and are zero in Bertrand Competition. In chapter 3, we examine Cournot competition between two firms that differ in their marginal costs of production. We show that the more efficient firm chooses a higher CSR level, reinforcing its dominant position. If there are sufficiently large fixed costs of CSR, only the more efficient firm will engage in CSR. In chapter 4, we compare the strategic potential of CSR and Customer Orientation (CO) as commitments to larger quantities in Cournot competition, modeled as a multi-stage game. First, in addition to profits, firms can choose to care for the surplus of either all consumers (CSR) or their own customers only (CO). Second, they decide upon the weight of this additional objective. We find that firms prefer to care for all consumers, choosing positive levels of CSR. This result provides an explanation for the recent shift in corporate culture from CO to CSR. Chapter 5 aims at identifying the strategic social responsibility of individuals. I conduct a laboratory experiment with three treatments: a regular ultimatum game (Baseline treatment) and two three-party ultimatum games with an NGO (NGO treatment) and a third person (TP treatment) as third party, respectively. I find that proposers in the three-party treatments allocate positive amounts to the third party. I show that proposers do not exclusively follow social preferences, but also strategic motives play a role when giving to the third party. In addition, responders are more willing to accept a proposal the higher the proposed share for the third party suggesting potential for strategic social responsibility. Proposers in the TP treatment can improve their relative payoffs compared to payoffs in the Baseline treatment by behaving strategically socially towards the third person.