Strategic Corporate Social Responsibility with Spillover Effect in Innovation

This paper investigates the firms’ incentive of using corporate socially responsible (CSR) innovation as a device in the presence of spillover effect of such innovation. By modelling a two-period environment where a fraction of consumers is altruistic who have higher willingness to pay for the CSR product, we particularly study the firms’ decision on CSR innovation with respect to the spillover effect and the fraction of the altruistic consumers. We find that a large (small) fraction of the altruistic consumers attracts (restricts) both firms to innovate. Moreover, if the leader has only one chance to innovate (i.e., makes decision on innovation in the first period only), a relatively large fraction could be a credible threat from the follower to the leader of innovation. Furthermore, in the situation where the leader has option of innovating in both periods, there exists a “patient area” in which the leader wishes to delay its innovation and do it with its rival in the second period. By doing so, the leader can weaken the rival’s benefit from being a follower of innovation