This paper revisits the classic issue of the comparison between price and quantity competition in the presence of Corporate Social Responsible (CSR) private firms. The results are in sharp contrast to the conventional wisdom for profit-seeking firms. In fact, profits can be larger under Cournot (resp. Bertrand) also when products are complements (resp. substitutes). Moreover, if the goods are substitutes, then the dominant strategy for each firm may be the choice of the price contract in the subgame perfect Nash equilibrium. Also the dominant Bertrand strategy equilibrium when the goods are complements may be Pareto-inferior from the firms’ perspective. Finally, the cornerstone belief that Bertrand competition is more efficient than Cournot competition may be reversed as well.

Introduction

A recent stylised fact regarding the firms’ behaviour is their tendency toward an increasing engagement in social activities. The diffusion of the “Corporate Social Responsibility” (CSR) is validated by numerous sources (e.g. McKinsey and Company, 2007; Economist Intelligence Unit, 2007; UN Global Compact and Accenture, 2010; Ernst and Young, 2010; KPMG, 2011, 2013, 2015). In particular, according to KPMG (2015), a remarkable and persistent increasing share of companies adopting CSR reporting has been observed in the last decade: in fact, while in 2005 a mere 41% of the 100 largest national companies in the surveyed countries and 64% of the 250 largest global companies reported CSR activities, those figures climbed in 2015 to 73% and 92%, respectively. The firms’ adoption of CSR behaviours, and its increasing economic relevance, has been a subject more and more frequently discussed also in the academic literature as a special issue appeared in the Journal of Economics and Management Strategy witnesses (Baron and Diermeier, 2007). From a theoretical perspective, the stream of the industrial organization (IO) literature dealing with the firms’ social concerns has produced different duopoly models whose main characteristics are the number (asymmetric or symmetric) as well as the typology (consumer surplus or social welfare oriented) of socially concerned firms. 1 However, this IO literature has predominantly investigated Cournot (quantity) competition in product markets. Nonetheless, as known, a classic issue in the IO literature is the comparison between price and quantity competition.