A Duopoly Model of Corporate Social Responsibility and Location Choice

We adopt a framework of vertical differentiation (i.e. differentiation by quality) to study the issue of Corporate Social Responsibility (CSR). We develop a model of duopoly in a two‐country setting, in which firms choose the country of location, the level of CSR and finally compete in the market à la Bertrand. We show that: i) at equilibrium the two firms choose different levels of CSR, i.e. an "ethical" and a "neutral" firm coexist in the market; ii) regardless of its location choice, the “neutral” firm undertakes a level of CSR equal to the minimum international standard; iii) the location choice of both the "ethical" and the "neutral" firm depends on the relative costs of CSR in the two countries; in addition the choice of the “ethical” firm is influenced by the distribution of consumers' tastes for CSR, while the choice of the “neutral” firm is affected by the level of the minimum international standard for CSR.