Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab

Do agreements among competitors regarding corporate social responsibility (CSR) promote public-interest objectives? We address this question theoretically and experimentally in a duopoly framework in which firms choose between offering a “fair” and an “unfair” good to consumers. When the unfair good is traded, a negative externality is imposed on a third party. We vary whether or not the firms are allowed to coordinate on the type of good they sell, while remaining in price competition. We experimentally find, as the theory predicts, that only pairs of firms with low other-regarding preferences take the opportunity to coordinate CSR to differentiate their products, implying an increase in trade of the fair good. Yet there is an indication that consumers are harmed on balance. In the total sample, there is no significant impact on the fraction of fair goods traded, average market prices, producer surplus, and consumer surplus. Other-regarding preferences seem more important drivers of socially responsible behavior than opportunities for firms to coordinate their CSR activities.