Corporate social responsibility, vertical product differentiation and international competition

• Published in: Review of international economics Vol. 27; no. 4; pp. 1108 - 1125
• Main Authors: Li, Jie, Wang, Xingtang, Dong, Baomin, Yu, Eden S. H.
• Format: Journal Article
• Language: English
• Published: Oxford Blackwell Publishing Ltd 01-09-2019
• Subjects: Differentiation; Duopoly; Economic models; Product differentiation; Social responsibility; Tariffs; Welfare
• ISSN: 0965-7576; 1467-9396
• DOI: 10.1111/roie.12408

Would a foreign firm’s consumer‐oriented corporate social responsibility (CSR) activities be rewarded by an importing country’s voluntary tariff reduction? The current paper addresses this question in an import‐competing duopoly model with vertical product differentiation. It is shown that the tariff will decrease if the foreign firm switches from a purely profit‐driven firm to a CSR firm. A consumer‐oriented CSR strategy will always hurt the domestic firm’s profit, whereas the relationship between the foreign firm’s profit and CSR sensitivity (the degree to which a firm cares about consumer welfare) is invertedly U‐shaped. When firms’ decisions to switch to CSR are endogeneized, only the foreign firm will become a CSR firm.