Conclusion
This paper establishes a three-stage game. In the first stage, the owner determines the optimal degree of CSR to maximize its own profit. In the second stage, the upstream manufacturer chooses the optimal royalty rate and fixed franchise fee. In the third stage, the downstream distributor sells the product to the final market of end consumers. We find that owners have an incentive to ask their manufacturers (or distributors) to participate in CSR activities. The difference is that, under the CP regime, the two owners try to involve their manufacturers in some CSR activities, making the distributors in their supply chain claim more advantages in competition and occupy a greater market share. Because both of them consider the same situation, it turns into a prisoner’s dilemma. The ultimate revenues of the two owners are thus lower versus the case of no CSR, but consumer surplus and social welfare benefit from the increase in total output. In the PC regime, the owners now decide the distributors’ degree of CSR; the manufacturers will set higher royalty rates, resulting in a final reduction of total market output, causing the two owners to form a situation that resembles collusion. As a result, consumer surplus and social welfare are undermined. Corporate social responsibility thus becomes a part of owners’ marketing tactics. This paper has expanded and compared the model of Goering (2012). Under the existence of competition, we show that the owner has incentive to ask it manufacturer to participate in CSR activities, and so the distributor in the supply chain has a cost advantage to sell more products and occupy a greater market share. This result differs very much from Goering (2012).
