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Consumer driven market mechanisms to fight inequality: the case of CSR/product differentiation models with asymmetric information

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  • Leonardo Becchetti

    (University of Rome Tor Vergata)

  • Luisa Giallonardo

    (University of Rome Tor Vergata)

  • Elisabetta Tessitore

    (University of Rome Tor Vergata)

Abstract

The bottom up pressure of "concerned" consumers and the rise of "socially responsible" products represents a new market mechanism to fight inequality and promote social inclusion. To analyze the new phenomenon of competition in corporate social responsibility (CSR) amid doubts on consumer tastes and of the effective corporate SR stance we adopt a horizontal differentiation approach in which the Hotelling segment is reinterpreted as the space of product SR characteristics and consumer tastes are uncertain. We find equilibria of the pure location and of the price-location games and show what changes when we move from a duopoly of profit maximizing producers to a mixed duopoly. Our findings illustrate that a nonzero degree of CSR is the optimal choice of profit maximizing corporations under reasonable parametric intervals of consumers’ "costs of ethical distance", corporate cost of CSR and uncertainty about consumer tastes.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2006-50.pdf
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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 50.

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Length: 25 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2006-50

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  1. Becchetti, Leonardo & Solferino, Nazaria, 2005. "The dynamics of ethical product differentiation and the habit formation of socially responsible consumers," AICCON Working Papers, Associazione Italiana per la Cultura della Cooperazione e del Non Profit 8-2005, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  2. de PALMA, A. & GINSBURGH, V. & PAPAGEOGIOU, Y.Y. & THISSE, J-F., . "The principle of minimum differentiation holds under sufficient heterogeneity," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -640, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  4. CREMER, Helmuth & THISSE, Jacques-François, . "Location models of horizontal differentiation: a special case of vertical differentiation models," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -931, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 22(1), pages 32-42.
  6. Frey, Bruno S., 1997. "On the relationship between intrinsic and extrinsic work motivation1," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 15(4), pages 427-439, July.
  7. de PALMA, André & GINSBURGH, Victor & THISSE, Jacques-François, . "On existence of Location equilibria in the 3-firm Hotelling problem," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -780, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, Elsevier, vol. 24(3), pages 345-368, April.
  9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  10. LeClair, Mark S., 2002. "Fighting the Tide: Alternative Trade Organizations in the Era of Global Free Trade," World Development, Elsevier, Elsevier, vol. 30(6), pages 949-958, June.
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Cited by:
  1. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2006. "Corporate Social Responsibility in Oligopoly," Working Papers, University of Crete, Department of Economics 0707, University of Crete, Department of Economics, revised 15 Jan 2007.
  2. Leonardo Becchetti & Marco Costantino, 2010. "Fair Trade in Italy: Too Much ‘Movement’ in the Shop?," Journal of Business Ethics, Springer, Springer, vol. 92(2), pages 181-203, April.

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