A note on the social responsibility in a bilateral monopoly

In a linear bilateral monopoly with the up-stream manufacturer and the down-stream retailer “consumers’ friendly” socially concerned (i.e. caring about a share of consumer surplus), Brand and Grothe (2015, in this Journal) shows that, although (as expected) both firms’ owners do not have an incentive to deviate from pure profit maximization when they choose their level of corporate social responsibility (CSR) simultaneously (or the retailer commits itself on social concern before the manufacturerer does), if the manufacturer commits itself on social concern before the retailer does, then both profits are enhanced. This paper shows that Brand and Grothe’s result may be strongly modified if there are decreasing returns to the input: only the retailer firm’s owners are incentived to adopt CSR and, at the equilibrium, this leads to a Pareto-superior outcome. This offers straightforward policy and empirical implications, arguing that the presence of CSR-type firms – which leads to higher profits and Pareto-superior outcomes, confirming the neoclassical economics point of view with respect to the adoption of CSR behaviors by firms’ owners – depends crucially on the technology.