Corporate Social Responsibility as a Strategic Coordination Mechanism in Competitive Supply Chains

ABSTRACT While prior studies have highlighted the strategic value of corporate social responsibility (CSR) in supply chains, little attention has been paid to the mechanism through which CSR incentives propagate across vertically related firms. This paper investigates how a shared manufacturer's dual‐purpose orientation affects competing retailers' incentives to engage in CSR. Using a game‐theoretical model with quantity competition, we show that when the manufacturer is purely profit‐driven, dual‐purpose retailers are penalized through higher wholesale prices, which undermines their incentives to adopt CSR. In contrast, when the manufacturer incorporates consumer surplus into its objective, it strategically lowers wholesale prices to expand total welfare. This pricing response creates a CSR‐based transmission channel through which upstream social concern reduces downstream cost pressure and stimulates CSR adoption by retailers. We identify three equilibrium patterns that arise depending on the manufacturer's emphasis on consumer welfare: (1) both retailers remain profit‐driven when the manufacturer's CSR concern is low; (2) one retailer adopts dual‐purpose orientation when the manufacturer's CSR concern is moderate; and (3) both retailers turn dual‐purpose when the manufacturer's CSR concern is high, resulting in a prisoner's dilemma. Overall, our analysis demonstrates how manufacturer‐led CSR can propagate endogenously through pricing incentives, transforming CSR from an individual firm's strategic choice into a supply‐chain‐wide coordination mechanism that improves consumer surplus and channel efficiency.