Corporate social responsibility and bargaining in unionized markets

Abstract

We investigate the firms’ and unions’ incentives to engage in socially responsibility activities in a unionized differentiated goods’ duopoly market. The socially responsible attributes attached to products are considered as credence goods, with consumers forming expectations about their existence and level. We show that a Corporate Social Responsibility (CSR) bargaining scheme, in which firms and unions bargain over not only the wage rate but also the level of the firms’ CSR activities, always arises in equilibrium. Incorporating CSR activities into the union–firm bargaining agenda acts as a commitment device that credibly signals to consumers the level of CSR activities undertaken by firms. The market equilibrium leads to the highest social welfare; thus, market and societal incentives are aligned.