Strategic environmental corporate social responsibility with improvements in pollutant reduction technology: Cournot vs. Bertrand

This study examines how competition style (quantity versus price competition) influences environmental corporate social responsibility (ECSR) strategy and social welfare. Previous research on ECSR assumed that firms invest in reducing pollutant emissions, whereas we observe that firms sometimes invest not only in reducing emissions but also in the marginal generation of pollutants, a type of investment that has been overlooked. We employ three assumptions: (a) firms invest in reducing the marginal generation of pollutants, under which pollutant emissions can decrease even if they increase the production of a good; (b) firms care only about their pollutant emissions and invest in reducing marginal pollutant generation from their production activities; and a quadratic environmental damage function. Findings show that, under quantity competition, firms do not choose a positive degree of ECSR, whereas under price competition, they set a positive degree of ECSR. However, when comparing total environmental damage under quantity and price competition scenarios, the latter is found to cause more damage. Assuming low marginal investment cost, social welfare is higher under price competition than under quantity competition only when product differentiation is moderate; otherwise, social welfare is greater under quantity competition.