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Corporate Social Responsibility for Kids’ Sake: A Dynamic Model of Firm Participation

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  • Michael Cohen

    ()
    (New York University)

  • Rui Huang

    ()
    (University of Connecticut)

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    Abstract

    This paper develops a dynamic oligopoly model of participation in a corporate social responsibility marketing initiative that defines quality standards for products advertised to children. Participation requires that firms either adopt initiative standards by investing in product quality or stop advertising products categorized as substandard quality. To test the model we estimate consumer demand for breakfast cereal using a panel of household purchase and television advertising data, then use it to investigate the incentives to participate in a costly initiative that improves the health quality of kids’ cereals. Model predictions demonstrate the conditions under which firms are incentivized to choose participation and to reformulate their product to meet the quality standard. The application also forecasts market evolution and investigates the impact of the kids’ health initiative on demand for calories, as well as firm profitability and consumer economic welfare. We compare these results to a mandatory quality compliance policy, and to business without an initiative, thus illustrating the costs and benefits of the three policy approaches.

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    File URL: http://www.zwickcenter.uconn.edu/documents/FInal12.pdf
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    Bibliographic Info

    Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Working Papers with number 12.

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    Length: 45 pages
    Date of creation: Sep 2012
    Date of revision:
    Handle: RePEc:zwi:wpaper:12

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    1. Ulrich Doraszelski & Sarit Markovich, 2007. "Advertising dynamics and competitive advantage," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 557-592, 09.
    2. R. Brau & C. Carraro, 2009. "The Design of Voluntary Agreements in Oligopolistic Markets," Working Paper CRENoS 200907, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    3. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
    4. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
    5. Na Li Dawson & Kathleen Segerson, 2008. "Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets," Land Economics, University of Wisconsin Press, vol. 84(1), pages 97-114.
    6. Craig A. Gallet, 2003. "Advertising and Restrictions in the Cigarette Industry: Evidence of State-by-State Variation," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 338-348, 07.
    7. Brett Gordon & Ronald Goettler, 2010. "Does AMD spur Intel to innovate more?," 2010 Meeting Papers 151, Society for Economic Dynamics.
    8. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    9. Sass, Tim R & Saurman, David S, 1995. "Advertising Restrictions and Concentration: The Case of Malt Beverages," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 66-81, February.
    10. Michelle Sovinsky Goeree, 2008. "Limited Information and Advertising in the U.S. Personal Computer Industry," Econometrica, Econometric Society, vol. 76(5), pages 1017-1074, 09.
    11. Ronald Goettler & Brett Gordon, 2014. "Competition and product innovation in dynamic oligopoly," Quantitative Marketing and Economics, Springer, vol. 12(1), pages 1-42, March.
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