Profitability of corporate social responsibility in network industries

The present paper shows that, when firms compete in a noncooperative way on the level of Corporate social responsibility (CSR) in network industries, the conventional result of the Prisoner's dilemma structure of the game in standard industries i.e. to have social concerns is the Nash equilibrium but it is harmful for firms' profitsEô vanishes and, for sufficiently intense network externalities, the equilibrium in which both firms have social concerns is more profitable than simple profit-seeking. Moreover, we show that - when firms cooperate in choosing the profit-maximising level of social concerns - a profit-maximising CSR level does exist provided that network effects are sufficiently strong. Finally, a counterintuitive result as regards consumers surplus and social welfare is obtained: those are always higher under competitive than cooperative choice of CSR because the level of CSR activities is higher in the former case. This also means that the non-cooperative choice of CSR not only achieves the largest profit but it is also Pareto-superior.