Corporate Social Responsibility and Bargaining in Unionized Markets

We investigate the firms' and unions' incentives to engage in social responsibility activities in a unionized differentiated goods' duopoly market. The socially responsible attributes attached to products are considered as credence goods, with consumers forming expectations about their existence and level. We show that a CSR bargaining scheme in which firms and unions bargain over not only the wage rate but also the level of the firm's CSR effort always arises in equilibrium. In fact, incorporating CSR activities into the firm's and union's bargaining agenda can act as a commitment device for the firm's owners and credibly signals to consumers that the firm has undertaken CSR activities. Moreover, the market equilibrium leads to the highest welfare; hence, market and societal incentives are aligned