Corporate social responsibility, profits, and welfare in a duopolistic market

We consider a two-stage game in a differentiated duopoly, where firms can pursue both a profit and a socially responsible objective. We assume that the maximum willingness-to-pay of consumers increases with the weights given by firms to their social objective, and that the social objective has a negative impact on the firms’ output. In the first stage of the game, the firms decide on the weight of their social objective and, in the second stage, firms compete à la Cournot. We show that accounting for social concerns in the firms’ objective is generally profitable, and that lower output and higher profits can be attained in equilibrium when the impact of firms’ social awareness on consumers’ willingness to pay is above a given threshold that depends on the products substitutability parameter. However, we find that the impact of firms’ social awareness on consumers’ and total welfare is ambiguous.