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The Socially Responsible Choice in a Duopolistic Market: a Dynamic Model of "Ethical Product" Differentiation

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Abstract

The increasing attention of profit maximising corporations to corporate social responsibility (CSR) is a new stylized fact of the contemporary economic environment. In our theoretical analysis we model CSR adoption as the optimal response of a profit maximising firm to the competition of a not for profit corporate pioneer in presence of a continuum of consumers with heterogeneous preferences toward the social and environmental features of the final good. CSR adoption implies a trade-off since, on the one side, it raises production costs but, on the other side, it leads to the accumulation of ethical capital. We investigate conditions under which the profit maximising firm switches from price to price and CSR competition by comparing monopoly and duopoly equilibria and their consequences on aggregate social responsibility and consumers welfare. Our findings provide a theoretical background for competition between profit maximising incumbents and not for profit entrants in markets such as fair trade, organic food, ethical banking and ethical finance.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 268.

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Length: 30 pages
Date of creation: 29 Mar 2013
Date of revision: 29 Mar 2013
Handle: RePEc:rtv:ceisrp:268

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: Mixed Duopoly; Horizontal Differentiation; Corporate Social Responsibility;

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  1. Giacomo Degli Antoni & Lorenzo Sacconi, 2011. "Does virtuous circle between social capital and CSR exist? A “network of games” model and some empirical evidence," Department of Economics Working Papers 1103, Department of Economics, University of Trento, Italia.
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