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Corporate social responsibility, vertical product differentiation and international competition
Author(s) -
Li Jie,
Wang Xingtang,
Dong Baomin,
Yu Eden S. H.
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12408
Subject(s) - duopoly , corporate social responsibility , product differentiation , tariff , profit (economics) , business , industrial organization , competition (biology) , social welfare , microeconomics , economics , welfare , market economy , international trade , ecology , political science , law , biology
Would a foreign firm’s consumer‐oriented corporate social responsibility (CSR) activities be rewarded by an importing country’s voluntary tariff reduction? The current paper addresses this question in an import‐competing duopoly model with vertical product differentiation. It is shown that the tariff will decrease if the foreign firm switches from a purely profit‐driven firm to a CSR firm. A consumer‐oriented CSR strategy will always hurt the domestic firm’s profit, whereas the relationship between the foreign firm’s profit and CSR sensitivity (the degree to which a firm cares about consumer welfare) is invertedly U‐shaped. When firms’ decisions to switch to CSR are endogeneized, only the foreign firm will become a CSR firm.