Endogenous Consumers’ Preferences as Drivers of Corporate Social Responsibility: Redefining Firm’s Strategy

Abstract

In this paper I construct a model where consumers’ preferences become endogenous to the firm strategic behavior. Particularly, I pay attention to the case where negative externalities in production create opportunities for firms to develop a Corporate Social Responsible strategic move, as a response of more sophisticated consumers with higher willingness to pay for a combined intrinsic and extrinsic utility process. I demonstrate that CSR behavior is a technological driven process, mainly initiated by consumers revealing strong preferences for CSR type of product, and firms deriving spillover learning effects through a Producer Benefit Experience. Firms can “do well by doing good” strategic planning that directly incorporates consumers’ preferences for an extrinsically differentiated product.