‘Just one of us’: consumers playing oligopoly in mixed markets

Marini, Marco A.; Zevi, Alberto

doi:10.1007/s00712-011-0219-7

Cited by 10 publications

(2 citation statements)

References 33 publications

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“…In combination with larger outputs and, hence, larger consumer surplus, higher profits even constitute a Pareto improvement. This observation is in line with the result by Marini and Zevi (2011) who show that, in a mixed oligopoly, the presence of consumer-owned firms (besides profit-maximizing firms) increases output and welfare, particularly when goods are complements. While the consumer-owned firm's objective to maximize consumer surplus is exogenously given in their model, our analysis shows that welfare enhancing weights on consumer surplus may endogenously arise for strategic reasons.…”

Section: Strategic Csr In Cournot and Bertrand Competition With Heterogeneous Goodssupporting

confidence: 91%

“…Incorporating consumer surplus in the objective function of a firm is also a widely-used way of taking all kinds of non-profit motives into account (see, e.g., Goering, 2007, 2008b, Lien, 2002, Saha, 2014. Models of consumer cooperatives (Kopel and Marini, 2014, Marini and Zevi, 2011, Mikami, 2003 put full weight on consumer surplus and no weight on profits.…”

Section: Introductionmentioning

confidence: 99%

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Strategic (Corporate) Social Responsibility

Planer-Friedrich¹

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Corporate Social Responsibility (CSR) has become a common concern for many firms as well as their customers. The term refers to all social and environmentally friendly activities of a firm beyond its legal requirements. This dissertation focuses on the strategic use of (corporate) social responsibility by firms and individuals and its economic implications. In chapters 2,3, and 4, Marco Sahm and I investigate CSR in a theoretical framework. We model CSR as a weight on consumer surplus in firms' objective function. The general decision structure is the same in all three chapters. A firm first strategically chooses the CSR level which maximizes its profit and then it maximizes the resulting objective function in order to choose its output quantity. We solve by backward induction. In chapter 2, we examine the strategic use of CSR in imperfectly competitive markets. First, we consider Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Finally, we show that CSR levels decrease as the degree of product heterogeneity increases in Cournot competition and are zero in Bertrand Competition. In chapter 3, we examine Cournot competition between two firms that differ in their marginal costs of production. We show that the more efficient firm chooses a higher CSR level, reinforcing its dominant position. If there are sufficiently large fixed costs of CSR, only the more efficient firm will engage in CSR. In chapter 4, we compare the strategic potential of CSR and Customer Orientation (CO) as commitments to larger quantities in Cournot competition, modeled as a multi-stage game. First, in addition to profits, firms can choose to care for the surplus of either all consumers (CSR) or their own customers only (CO). Second, they decide upon the weight of this additional objective. We find that firms prefer to care for all consumers, choosing positive levels of CSR. This result provides an explanation for the recent shift in corporate culture from CO to CSR. Chapter 5 aims at identifying the strategic social responsibility of individuals. I conduct a laboratory experiment with three treatments: a regular ultimatum game (Baseline treatment) and two three-party ultimatum games with an NGO (NGO treatment) and a third person (TP treatment) as third party, respectively. I find that proposers in the three-party treatments allocate positive amounts to the third party. I show that proposers do not exclusively follow social preferences, but also strategic motives play a role when giving to the third party. In addition, responders are more willing to accept a proposal the higher the proposed share for the third party suggesting potential for strategic social responsibility. Proposers in the TP treatment can improve their relative payoffs compared to payoffs in the Baseline treatment by behaving strategically socially towards the third person.

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Section: Strategic Csr In Cournot and Bertrand Competition With Heterogeneous Goodssupporting

confidence: 91%

Section: Introductionmentioning

confidence: 99%

Strategic (Corporate) Social Responsibility

Planer-Friedrich¹

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Strategic delegation in consumer cooperatives under mixed oligopoly

Kopel

Marini

2013

J. Econ.

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The main aim of this paper is to study the propensity of consumer cooperatives (Coops) to use incentive schemes in situations of strategic interaction with profit-maximizing firms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a flat wage to its manager relying instead on her intrinsic motivation, whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, by recruiting a manager whose preferences are aligned with the company goals (e.g., a consumer-owner), the Coop is per se highly expansionary in term of output. Therefore, the Coop does not need to rely on an externally hired manager who sets prices aggressively to expand market share and quantity. Furthermore, adopting a monetary reward based on sales and profits leads to distorted incentives with respect to the Coop's goal, which after all is the welfare of its members. © 2013 Springer-Verlag Wien

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Colluding with a conscience

Santore¹,

Cotten

2014

J. Econ.

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‘Just one of us’: consumers playing oligopoly in mixed markets

Cited by 10 publications

References 33 publications

Strategic (Corporate) Social Responsibility

Strategic (Corporate) Social Responsibility

Strategic delegation in consumer cooperatives under mixed oligopoly

Colluding with a conscience

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