Corporate Social Responsibility and Labor-Managed Duopoly with Wage Rise as Strategic Commitment

Abstract

This paper investigates a duopoly game model in which two labor-managed firms compete in quantities. The game proceeds as follows. In the first stage, each labor-managed firm independently and simultaneously chooses the corporate social responsibility (CSR) level. In the second stage, each labor-managed firm independently and simultaneously chooses whether or not to offer the wage-rise contract policy (WRCP) as a strategic commitment device. If a labor-managed firm offers WRCP, it decides an output level and a wage premium rate. In addition, the labor-managed firm agrees to pay each employee a wage premium uniformly, provided that it actually produces more than the chosen output. At the end of the game, each labor-managed firm independently and simultaneously chooses an actual output. First, the paper examines the reaction functions of labor-managed firms in the model and shows that the reaction functions of labor-managed firms are upward-sloping. Next, this paper discusses the equilibrium of the model and shows that there is an equilibrium in which each labor-managed firm does not use CSR as a business strategy.

Keywords

• corporate social responsibility
• cournot model
• labor-managed firm
• reaction function
• wage-rise contract