Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab

Abstract

Market competition can erode socially responsible behavior, suggesting that allowing collusive agreements regarding corporate social responsibility (CSR) may promote public interest objectives such as fair trade and environmental standards. We study this idea in a vertical product differentiation model, extended with firms that partly internalize external effects, and laboratory experiments. Firms choose between offering a 'fair' and an 'unfair' product that imposes a negative externality on a third party. The treatment is to allow firms to coordinate on the type of good they sell, while remaining in price competition. We find that CSR collusion diminishes product variety and polarizes. More of the same product type, fair and unfair, is offered, without a significant impact on the fraction of fair goods traded. Instead, thirdparty preferences are the more important driver of socially responsible behavior. We highlight implications for competition policy, where cartels may be exempted on sustainability grounds.

Corporate Social Responsibility by Joint Agreement

“…Some years later, in the complementary market for household laundry detergents, an accredited industry initiative to promote more sustainable washing powders became a cover for price collusion in Consumer Detergents (2011).9 See most of the contributions inHolmes et al (2021).10 Ziegler et al (2020) show that erosion of morals in lab experiments is larger in multi-unit markets than in single-unit markets. In contrast to this literature,Gomez-Martinez et al (2019) find that consumer and managerial values are more important drivers of socially responsible behaviour in the lab than coordination.…”

Green Antitrust: Friendly Fire in the Fight against Climate Change

“…ACM, Analysis of the sustainability arrangements concerning the 'Chicken of Tomorrow', 26 January 2015.24 ACM, Welfare of today's chicken and that of the 'Chicken of Tomorrow', 1 September 2020.25 See alsoGomez-Martinez et al (2019).…”