Strategic and Altruistic Corporate Environmental Responsibility in a Green Market

We investigate the impact of firms’ strategic and altruistic corporate environmental responsibility (CER) engagement on a covered market where consumers care about green quality. Define a firm as engaging in strategic (altruistic) CER if it executes voluntary environmental actions by seeking profit maximization (both profit maximization and environmental damage minimization). In a duopoly vertical product differentiation model, we find that when firms engage in pure strategic or sparsely altruistic CER, only the greener firm invests in green quality. The environment is less protected because both firms’ optimal green quality levels are below the social optimum. When firms’ aggregate altruistic CER engagement rises to a certain level, the less green firm also invests in green quality. The environment is may be over-protected when the firms’ optimal green quality levels are above the social optimum. Interestingly, the profit of the less green firm rises with its altruistic CER, which implies that embracing environmental concerns does not sacrifice its profit. Finally, when firms engage in CER, social welfare in the market equilibrium is unambiguously lower than the social optimum.