Partially Observable Corporate Social Responsibility: The Limits of Differentiation

We investigate investment incentives in credence corporate social responsibility (CCSR) under different market structures. In duopoly, for high enough market transparency the firms differentiate their product by (only) one of them investing in the SR (clean) technology. If the firms merge, with high enough market transparency (and product traceability) the monopolist also invests in (only) one plant but the necessary market transparency is higher, so competition promotes CCSR. When market transparency lacks product traceability, whenever the monopolist invests it is in both plants, but the consumer information needed regarding the technologies being used by the firm is even higher. Overall we find that the market pushes toward product differentiation, which is both good and bad: there is usually some ∗We thank seminar participants in The University of Edinburgh and UIB, especially Ina Taneva and Lluís Bru for helpful suggestions. Calveras and Sákovics both thank grant PID2020-115018RB-C33 funded by MCIN/AEI/ 10.13039/501100011033. Furthermore, Calveras thanks Grant PRX19/00253 for the financing of his visit to The University of Edinburgh where part of this work was developed, and Sákovics thanks the Spanish government for support through a Beatriz Galindo grant (BG20/00079).