Analysis of firm's corporate social responsibility strategies in duopoly competition under government regulations

With more attention paid on corporate social responsibility (CSR), firms’ CSR operational strategies greatly impact their profits and social welfare. It becomes more and more important for a firm to carefully choose its CSR operational strategy, and how the government takes regulation methods to promote CSR operations is increasingly significant. This work adopts a Cournot model in which two firms engage in duopoly competition, to study firms’ CSR strategies from different perspectives. First, from the perspective of firms, this paper studies firms’ incentives to adopt CSR compliance strategy, and how exposure risk (exposure probability and demand sensitivity) and cost premium impact firms’ operational strategies in a competition context. Then from the perspective of policymakers, this paper proposes five different regulatory methods, and explores the performance of these methods and the impact on consumer surplus and social welfare. The results show that mandatory requirement on firms’ CSR strategy may either benefit or hurt firms’ profitability. The results show that mandatory requirement on firms’ CSR strategy may help firms escape the prisoner’s dilemma; however, it might lower consumer surplus and social welfare. Quantifying firms’; CSR effort level is effective in prohibiting firms’ non-CSR behavior. Meanwhile, the method can improve consumer surplus and social welfare, leading to a win-win-win outcome among the market, policymakers and consumers. Weaken competition can promote firms’ CSR compliance strategy, but it can result in some negative effects. On the basis of social welfare maximization, subsidy can promote firms to adopt CSR compliance strategy, while charging penalty rates lowers social welfare. © 2024 Systems Engineering Society of China. All rights reserved.