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Quid Pro Quo CSR and Trade Liberalization in a Bilateral Monopoly

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  • Shih-Shen Chen

    (School of Economics and Management, Fuzhou University of International Studies and Trade, Fuzhou 350202, China)

  • Chien-Shu Tsai

    (Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung 807618, Taiwan)

  • Chen Chen

    (School of Economics and Management, Fuzhou University of International Studies and Trade, Fuzhou 350202, China)

Abstract

We construct a dynamic bilateral monopoly game to analyze the bargaining between a foreign manufacturer and a domestic retailer regarding the wholesale price and explain the foreign upstream firm’s corporate social responsibility (CSR) initiative and its economic impacts on the domestic market. Under free trade, the foreign upstream firm’s CSR initiative realizes improvements in consumer surplus and social welfare in the home country. A “win–win–win” strategy exists, as the foreign manufacturer has more of an incentive to implement CSR when the government implements a strategic trade policy. The consumer-friendly action implemented by the foreign upstream firm leads to adequate consumer welfare and social welfare, which mitigates the government’s political hostility. With the high bargaining power of the foreign upstream firm and the low weight of the consumer-friendly upstream firm, the government should set a higher tariff rate for the foreign upstream firm to extract rent and enhance social welfare.

Suggested Citation

  • Shih-Shen Chen & Chien-Shu Tsai & Chen Chen, 2022. "Quid Pro Quo CSR and Trade Liberalization in a Bilateral Monopoly," Games, MDPI, vol. 13(3), pages 1-11, May.
    • Handle: RePEc:gam:jgames:v:13:y:2022:i:3:p:38-:d:813765
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    References listed on IDEAS

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