Strategic Environmental Corporate Social Responsibility (ECSR) Certification and Endogenous Market Structure

TL;DR

This paper analyzes how endogenous market structures influence optimal ECSR certification standards and firms' strategic choices in differentiated duopoly markets, revealing that competition type affects certification levels and contractual behaviors.

Contribution

It extends prior research by incorporating endogenous market structures and refined certification standards into the analysis of ECSR's impact in differentiated duopoly markets.

Findings

Optimal ECSR standards are highest in Bertrand competition.

NGO certifiers set standards below the optimal level.

Both price and quantity contracts are possible under certain conditions.

Abstract

This paper extends the findings of Liu et al. (2015, Strategic environmental corporate social responsibility in a differentiated duopoly market, Economics Letters), along two dimensions. First, we consider the case of endogenous market structure a la Vives and Singh (1984, Price and quantity competition in a differentiated duopoly, The Rand Journal of Economics). Second, we refine the ECSR certification standards in differentiated duopoly with rankings. We find that optimal ECSR certification standards by NGO are the highest in Bertrand competition, followed by mixed markets and the lowest in Cournot competition. Next, NGO certifier will set the ECSR standards below the optimal level. Also, we show that given the ECSR certification standards, there is a possibility of both price and quantity contracts choices by the firms in endogenous market structure.