The Optimal CSR and Sustainability Approach in a Spatial Duopoly: A Comparative Study

In the context of increasing consumer environmental awareness (CEA), firms are progressively adopting corporate social responsibility (CSR) strategies that seek to align profitability with environmental objectives. This paper develops a mathematical model to explore the implications of CSR under two distinct scenarios: one that incorporates both social and environmental impacts and another that focuses solely on environmental concerns. The analysis is situated within a spatial mixed duopoly, where a CSR-oriented firm competes with a purely profit-maximising rival. A game-theoretical framework is employed, in which the CSR firm’s objective function is modelled as a weighted sum of private profits and the environmentally driven welfare of consumers. Equilibrium analysis demonstrates that CSR engagement improves market outcomes relative to a benchmark without CSR and generates positive externalities for the non-CSR firm. Moreover, the scenario prioritising environmental impact alone yields superior sustainability and welfare outcomes for both consumers and firms, despite identical demand and product differentiation conditions. These findings enhance our understanding of how CEA interacts with CSR strategies in imperfectly competitive markets, offering valuable insights for managerial decision-making and the formulation of environmental policy.