Corporate social responsibility and supplier development

We study final good producers’ incentives and capabilities for implementing corporate social responsibility (CSR) activities with their input suppliers via supplier codes of conduct (SCoC). In this context, we first analyze the implicaitons of SCoC on the market equilibrium outcome in terms of the competition among final good producers as well as their supply relationships. We then derive the conditions under which SCoC are successfully implemented in the industry’s supply chains and clarify their implications for consumer welfare. In this context, we study endogenous as well as exogenous standards and further contrast two scenarios in which the input supplier either pricei discriminates or sets a uniform input price. In the case of endogenous standards, SCoC are set to maximize final good producers’ profits and, in equilibrium, are adopted in all supply chains. When standards are exogenous, either no, some or all final good producers successfully implement a SCoC. Here, the equilibrium may be characterized by an underprovision of SCoC, in the sense that not all final good producers that have incentives to adopt a SCoC also succeed to do so. In this context, we study the effectiveness and desirability of public and private initiatives that aim at overcoming this underprovision. In terms of the input suppplier’s pricing policy, we observe that input price discrimination may provide firms with greater incentivesi to adopt SCoC and, as a corollary, may maximize consumer surplus.