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

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.