Corporate Social Responsibility and the R&D Risk Choices in a Product Differentiated Market

Sang-Ho Lee; Cho Sumi

doi:10.23842/jif.2020.31.1.002

Journal of Insurance and Finance

2020, 31(1), pp.53-86
DOI :10.23842/jif.2020.31.1.002
Publisher : Korea Insurance Research Institute
Research Area : Business Management

Sang-Ho Lee ¹ , Cho Sumi ²

¹ 전남대학교
² 전남대학교 지역개발연구소

ABSTRACT

This paper investigates the choices of R&D risk in a product differentiated duopoly market where the corporate social responsibility (CSR) is involved in the analysis. We compare the equilibrium choices between quantity and price competitions and find the following findings. Under quantity competition, CSR firm’s R&D risk level is higher than that of private firm, and the difference of R&D risk levels increases as the degree of product substitution or CSR level increases. Under price competition, the R&D risk level of CSR firm is higher than that of private firm with a lower substitutability, but the reverse is true with a higher substitutability. Comparing each firm’s R&D risk level under quantity and price competitions, the level of R&D risk under price competition is always higher than that under quantity competition and, as either product substitutability or CSR level increases, the difference of R&D risks is higher under price competition. We also extend the analysis into the case that the CSR firm chooses the degree of CSR strategically to increase its profit. We then show that if the degree of product substitutability is larger (smaller), the impact on CSR under quantity (price) competition is larger.
KEYWORDS

Duopoly Market , R&D Risk Choices , Product Substitutability , Corporate Social Responsibility , Market Competition
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