The game of social responsibility: pioneers, imitators and social welfare

Leonardo Becchetti, Giorgio Federico () and Nazaria Solferino ()
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Giorgio Federico: Associazione Italiana per la Cultura della Cooperazione e del Non Profit, Postal: P.le della Vittoria, , 15 - 47100 Forli', , Italy, http://www.aiccon.it
Nazaria Solferino: Associazione Italiana per la Cultura della Cooperazione e del Non Profit, Postal: P.le della Vittoria, , 15 - 47100 Forli', , Italy, http://www.aiccon.it

No 15-2005, AICCON Working Papers from Associazione Italiana per la Cultura della Cooperazione e del Non Profit

Abstract: In this paper we outline a model of horizontal product differentiation where two duopolists a profit maximising producer (PMP) and a socially responsible fair trader (FT) producer compete over prices and (costly) socially and environmentally responsible features of their products. We analyse the optimal PMP reaction in price and location on the social responsibility segment under the assumption that consumers have quadratic costs in buying a product which is below their own ethical standard. We show that, when consumers perceived costs of ethical distance are high enough, partial ethical imitation is part of his optimal reaction under different theoretical frameworks. We finally evaluate deviations of PMP and FT price-location choices from social optimum, finding that even though entry represents a Pareto improvement for consumers in the North strategic complementarity between prices and ethical location leads to prices and location which are above domestic (but not necessarily international) social optimum in all the considered games.

Keywords: horizontal differentiation; social responsibility; social welfare (search for similar items in EconPapers)
JEL-codes: L13 L31 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2005-05-24
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Citations: View citations in EconPapers (5)

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