Partially observable corporate social responsibility: The limits of differentiation

Abstract

AbstractWe investigate investment incentives in credence corporate social responsibility under different market structures. In duopoly, for high enough investment transparency (IT), exactly one firm invests in the clean technology: They differentiate their products. If the firms merge, with high enough IT and product traceability, the monopolist also invests in (only) one plant, but the necessary IT for investment is higher. Without product traceability, whenever the monopolist invests, it is in both plants, but the IT required for investment is even higher. We conclude that “green” competition policy must be nuanced, taking into account (or regulating) both transparency and traceability.