Impacts of Corporate Social Responsibility on New Product Development

Incorporating corporate social responsibility (CSR) considerations into product positioning decisions is an important element of the sustainable agenda for many firms. Offering a socially responsible (SR) product is expected to increase revenues due to an improved brand image, penetration into new SR market segments and the consumers’ willingness to pay a premium for an SR product. However, it can also have an adverse impact on production and supply chain costs, and elicit market response from rivals. We propose a game-theoretic duopoly model to identify product differentiation strategies, where one, none, or both firms offer socially responsible (SR) products at market equilibrium. The findings of this research contribute to the CSR product positioning literature and provides multi-disciplinary insights for strategically positioning socially responsible products in competitive markets. We show how the decision to offer an SR product depends upon the marginal cost increase of the SR product, potential market growth and the impact of the SR product on the firm’s brand image, as well as the interactions among these factors. The research examines the strategic implications of offering SR products and is the first to identify the conditions, where offering SR products can lead to intensified price competition and significant profit loss. We show that competing firms can become trapped in a prisoner’s dilemma, where both firms choose to offer competing SR products, even though it leads to a decline in profits for both. We further show how a high marginal cost for providing an SR product can lead to a quasi-monopoly situation, where one firm offers the SR product and the other a non-SR product, but both firms earn higher profits than the status quo.Decision and Information Sciences, Department o