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The Profit‐Maximizing Case for Corporate Social Responsibility in a Bilateral Monopoly
Author(s) -
Goering Gregory E.
Publication year - 2014
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2643
Subject(s) - stylized fact , franchise , profit (economics) , microeconomics , monopoly , channel coordination , business , tariff , industrial organization , corporate social responsibility , upstream (networking) , economics , supply chain , marketing , supply chain management , computer science , international trade , computer network , macroeconomics , ecology , biology
We analyze a stylized distribution channel (bilateral monopoly) model where an upstream manufacturer sells output to a downstream retailer. In a two‐stage linear demand game setting, we show that a two‐part contract, consisting of a wholesale price and corporate social responsibility (CSR) component, can be utilized by the manufacturer to fully coordinate and control its retailer. Thus, a CSR contract can be used in place of the traditional two‐part tariff scheme (wholesale price and fixed franchise fee) to optimally coordinate the marketing channel. Our model provides a novel theoretical profit‐maximizing rationale for the strategic use of CSR. Copyright © 2013 John Wiley & Sons, Ltd.