Corporate Purpose as a Competitive Advantage

Corporate Purpose as a Competitive AdvantageVicente Salas-FumásUniversity of Zaragoza March 2023AbstractThere is a widely held belief that capitalism delivers superior social outcomes if the reason why corporations come into existence, their purpose, is to create social value rather than to make profits. However, the business research has well-established that the profits and the value created by firms are positively correlated, making the debate around corporate purpose irrelevant. In this paper, I model the equilibrium outcomes in markets with competing value-maximizing and profit-maximizing firms and compare their private and social values. Value-maximizing firms compete without restrictions on contracting and side payments with collaborating parties, while profit-maximizing competition is restricted to price-mediated exchanges. The main conclusion of the comparative analysis is that the market equilibrium outcomes depend more on the assumptions about the transacting constraints than on the corporate purpose per se