The Effects of Competition on Corporate Sustainability

37 Pages Posted: 1 Feb 2023 Last revised: 12 Dec 2023

See all articles by Titing Cui

Titing Cui

University of Pittsburgh - Katz Graduate School of Business

Esther Gal‐Or

University of Pittsburgh

Mike Gordon

Virginia Tech - Pamplin College of Business

Michael Hamilton

University of Pittsburgh - Katz Graduate School of Business

Jennifer Shang

University of Pittsburgh

Date Written: February 1, 2023

Abstract

We investigate the relationship between competition and market composition on prosocial corporate behaviors, with a focus on the adoption of green technologies. We examine a model in which producers offer one of two substitutable goods: one that is inexpensive to produce but less environmentally responsible, referred to as the "non-green" product, and another that is more costly but sustainably produced, referred to as the "green" product. The producers of these goods can either cooperate or compete in the market, controlling both their price and level of corporate social responsibility (CSR) in order to maximize revenue. Using Salop's circle model, we examine a variety of arrangements of green and non-green producers and analyze the optimal/equilibrium policies that result. We find that in markets where firms produce both green and non-green goods, a reduction in the additional cost of green manufacturing induces more green investment and prosocial corporate investment when producers cooperate. On the other hand, when the green product is absent from the market, reductions in green production cost can more readily lead to the introduction of the green good in competitive markets. These results have significant implications for policy-making, as they provide insight into which types of markets are most impacted by reductions in the cost of green production, such as those resulting from government subsidies or technological innovation.

Keywords: Sustainability, Corporate Social Responsibility, ESG, Greening, Competitive Markets

JEL Classification: D40, Q01, Q50

Suggested Citation

Cui, Titing and Gal‐Or, Esther and Gordon, Mike and Hamilton, Michael and Shang, Jennifer, The Effects of Competition on Corporate Sustainability (February 1, 2023). Available at SSRN: https://ssrn.com/abstract=4344348 or http://dx.doi.org/10.2139/ssrn.4344348

Titing Cui

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Esther Gal‐Or

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

Mike Gordon

Virginia Tech - Pamplin College of Business ( email )

2060 Pamplin (0235)
880 West Campus Drive
Blacksburg, VA 24061
United States

Michael Hamilton (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA
United States

Jennifer Shang

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

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