Consumer driven market mechanisms to fight inequality: the case of CSR/product differentiation models with asymmetric information

Leonardo Becchetti, Luisa Giallonardo and Elisabetta Tessitore
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Luisa Giallonardo: University of Rome Tor Vergata
Elisabetta Tessitore: University of Rome Tor Vergata

No 50, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: The bottom up pressure of "concerned" consumers and the rise of "socially responsible" products represents a new market mechanism to fight inequality and promote social inclusion. To analyze the new phenomenon of competition in corporate social responsibility (CSR) amid doubts on consumer tastes and of the effective corporate SR stance we adopt a horizontal differentiation approach in which the Hotelling segment is reinterpreted as the space of product SR characteristics and consumer tastes are uncertain. We find equilibria of the pure location and of the price-location games and show what changes when we move from a duopoly of profit maximizing producers to a mixed duopoly. Our findings illustrate that a nonzero degree of CSR is the optimal choice of profit maximizing corporations under reasonable parametric intervals of consumers’ "costs of ethical distance", corporate cost of CSR and uncertainty about consumer tastes.

Pages: 25 pages
Date: 2006
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (5)

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