Corporate social responsibility and network externalities: a game-theoretic approach

Abstract

This research revisits the pioneering work by Katz and Shapiro (Am Econom Rev 75:424–440, 1985) with network (consumption) externalities in a twofold way: first, it con siders Corporate Socially Responsible (CSR), instead of profit-maximising, firms; second, it uses a game-theoretic approach and analyses the commitment decision game in which firms face the binary choice to credibly commit (C) or not to commit (NC) themselves to an announced output level in the first decision-making stage. Competition at the market stage occurs à la Cournot. Results show a rich spectrum of sub-game perfect Nash equilibrium (SPNE) outcomes, ranging from the prisoner’s dilemma (self-interest and mutual benefit of output commitment conflict) to the anti-prisoner’s dilemma or deadlock (self-interest and mutual benefit of output commitment do not conflict), passing from the coordination to the anti-coordination game. These outcomes depend on the intensity of the social concern in the firm’s objective and the network size. The article also pinpoints the welfare outcomes corresponding to the SPNE and extends the analysis to a Stackelberg rivalry setting.