Social Responsibility in a Bilateral Monopoly with Downstream Convex Technology
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Social Responsibility in a Bilateral Monopoly with Downstream Convex Technology Luciano Fanti 1 & Domenico Buccella 2 Received: 17 October 2019 / Revised: 30 May 2020 Accepted: 9 June 2020 # The Author(s) 2020
Abstract
This paper shows that, in a bilateral monopoly with consumer-friendly social concerns, only the downstream firm is always incentivized to adopt corporate social responsibility (CSR) if it has decreasing returns to the input, leading to a Pareto-superior outcome in equilibrium. This occurrence differs from a standard linear bilateral monopoly in which, if the upstream (downstream) firm commits itself to CSR before the downstream (upstream) does, then both firms improve profits, while they do not deviate from pure profitmaximization if CSR levels are simultaneously chosen. Straightforward policy and empirical implications are offered, and this paper argues that the presence of CSR-type firms crucially depends on technology. Keywords Bilateral monopoly . Corporate social responsibility JEL Classification D21 . L12 . L22 . M14
1 Introduction During the last decades, the adoption of corporate social responsibility (CSR) activities has become a global business practice. In 2002, KPMG surveyed the top 100 companies in 45 countries, disclosing that 23 percent of them declared the accomplishment of CSR activities in their financial reports; those figures increase to 73 percent in 2015. Moreover, in the same time
* Domenico Buccella [email protected] Luciano Fanti [email protected]
1
Department of Economics and Management, University of Pisa, Via Cosimo Ridolfi, 10, I– 56124 Pisa, PI, Italy
2
Department of Economics, Kozminski University, Jagiellońska Street, 57/59, 03301 Warsaw, Poland
Journal of Industry, Competition and Trade
period, the Global Fortune Index (which includes the world’s 250 largest companies) has more than doubled those figures, from 45 to 92 percent (KPMG 2005, 2015). The booming expansion of CSR has raised questions among scholars and policy makers, thus spurring the debate on the motives pushing companies to engage in socially concerned activities. Interestingly, however, in some vertically related industries, an asymmetric attitude toward CSR has been observed among upstream and downstream firms. For instance, on November 2017, leading carmakers including Volkswagen and Toyota pledged to sustain socially responsible standards in their purchases of minerals for an expected boom in electric vehicle production. However, talks with major cobalt producers (including Glencore, one of the largest globally diversified natural resources company), which are barely engaged in CSR in activities, ended without a deal on this issue (Reuters 2017). In this paper we pose the following research question: how do firms’ attitudes toward CSR activities depend on the feature of production function in a vertically related industry? Our reference point is the contribution of Brand and Grothe (2015), which analyzes the choice of CSR engagement in the upstream and downstream firms in a st
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