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Corporate social responsibility, vertical product differentiation, and privatization policy

Author

Listed:
  • Xingtang Wang

    (Guangdong University of Foreign Studies)

  • Leonard F. S. Wang

    (Zhongnan University of Economics and Law)

Abstract

In this paper, we consider that the public firm competes with a private firm caring about consumer surplus in vertically differentiated market. We explore the privatization policy, and the relationship between the optimal degree of privatization and the CSR degree of private firm. We find that if the public firm produces low-quality products, the government should adopt a policy of privatization, and the optimal degree of privatization is decreasing (increasing) in the CSR degree of private firm, if the cost difference of quality is sufficiently small (large). However, if the public firm produces high-quality products and the cost difference of quality is sufficiently large (small), the government should (not) adopt a policy of privatization. The government's privatization policy is related to the difference in quality and cost of the products produced by firms. We further analyze the endogenous selection of product quality between public firm and private firm and find that if the quality gap between high-quality products and low-quality products is sufficiently large, both firms will choose to produce high-quality products. If the product quality gap is of medium-intensity, the public firm chooses to produce low-quality products, and the private firm chooses to produce high-quality products. However, if the product quality gap is sufficiently small, there is no Nash equilibrium.

Suggested Citation

  • Xingtang Wang & Leonard F. S. Wang, 2022. "Corporate social responsibility, vertical product differentiation, and privatization policy," The Japanese Economic Review, Springer, vol. 73(2), pages 403-425, April.
    • Handle: RePEc:spr:jecrev:v:73:y:2022:i:2:d:10.1007_s42973-020-00053-9
    DOI: 10.1007/s42973-020-00053-9
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    References listed on IDEAS

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    1. Ding Chen & Leonard F. S. Wang & Ji Sun, 2023. "Does CSR influence privatization wave?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1088-1097, March.
    2. Ohnishi, Kazuhiro, 2023. "Why firms should care for consumers: Complementary goods," MPRA Paper 117305, University Library of Munich, Germany.
    3. Wu, Di & Sun, Ji & Wang, Leonard F.S. & Liu, Huizhong, 2024. "Network externalities in a vertically differentiated luxury goods market," Mathematical Social Sciences, Elsevier, vol. 128(C), pages 100-109.

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