CORPORATE SOCIAL RESPONSIBILITY AND MARKET ENTRY

Is the firms' decision to pursue social interest and promote social progress philanthropic or motivated by strategic reasons? Making use of a simple Spence-Dixit entry model entry game in the presence of homogeneous goods, this paper studies the possible anticompetitive effect of the adoption of Corporate Social Responsibility (CSR) in the form of "consumer friendliness"( i.e. firms' attention to consumers' welfare). It is shown that, when the market becomes contestable, the incumbent can endogenously select to adopt CSR to hamper to a greater extent the potential entrant, regardless of its choice to engage in CSR activities. In other words, CSR can become a strategic barrier to entry. More precisely, when entry is considered, the incumbent's choice to follow CSR reduces the sunk cost thresholds that block and deter the entrant's market access, and remarkably shrinks the relevant area of the parameters set in which the incumbent accommodates entry. In other words, market entry is relatively more blockaded and deterred in an industry with CSR. However, it is also shown that, if the fixed costs are sufficiently small, embracing reasonably low CSR rules is a dominant strategy for the entrant which, in such a way, improves its profitability. These findings open a new view of CSR rules and seem to provide a plausible explanation of the empirical evidence that firms following CSR rules are increasingly present in several industries. Moreover, this assertion seems to support the sentiment of the participants in public and academic debates, in which a large majority express the opinion that CSR can give companies a competitive advantage, and social responsibility is a real business issue.