Corporate Social Responsibility by Joint Agreement

Abstract

Industry-wide voluntary agreements are touted as a means for corporations to take more corporate social responsibility (CSR). We study what type of joint CSR agreement induces firms to increase CSR efforts in a model of oligopolistic competition with differentiated products. Consumers have a willingness to pay for more responsibly manufactured products. Firms are driven by profit, and possibly by intrinsic motivation, to invest in costly CSR efforts. We find that cooperative agreements directly on the level of CSR reduce CSR efforts compared to competition. Such agreements throttle both for-profit and intrinsic motivations for CSR. CSR efforts only increase if agreements are permitted solely on output. Such production agreements, however, reduce total welfare in the market and raise antitrust concerns. Taking externalities into account may help to justify a production agreement under a total welfare standard, but not agreements on CSR directly. Moreover, simply requiring a higher CSR level by regulation while preserving competition always gives higher within-market welfare.

Green Antitrust: Friendly Fire in the Fight against Climate Change

“…Sustainability is a product attribute that consumers care about, and hence is used by firms to compete and attract each other's customers. Schinkel and Treuren (2021) generalize these findings to more firms, remaining competition, varying willingness to pay for sustainable products, and firms' intrinsic motivation to do good. Note that when firms coordinate prices and sustainability investments, sustainability levels are still lower than in competition.…”

“…Importantly, however, if firms operate with an intrinsic motivation to produce more sustainably too, investments typically remain higher in competition than with sustainability agreements, and the difference may even become larger. In Schinkel and Treuren (2021), the level of sustainability investments features directly in each firm's objective function, besides in the profits part. Since intrinsically motivated investments are independent of the competitive regime, they are higher in absolute value in both competition and coordination.…”