The trade-off between corporate social responsibility and competitive advantage: a biform game model
Abstract
This paper uses a biform game model to study firms’ trade-offs between corporate social responsibility (CSR) and competitive advantage. We focus on the context in which a competitive advantage may lead to a non-profitable scenario. It is possible that the first mover’s investment in competitive strength may deter itself from the market, which encourages firms’ investment in CSR over competitive strength. As a result, in some circumstances, firms may actively choose a CSR strategy over a competitive strategy. Our results show that (1) technological characteristics, (2) industrial structure, and (3) institutional environments are factors that influence the rational equilibrium of our model and the balance between competitive advantage and CSR. The mechanism and boundary on how firms make trade-offs between CSR activities and competitive strength are exhibited by our model, which provides a framework for decision-making and adds new insights into the strategic balance between market and non-market strategies.
First published online 10 February 2022
Keyword : CSR, competitive advantage, biform game
How to Cite
Zhao, X., Tan, J., & Zhong, S. (2022). The trade-off between corporate social responsibility and competitive advantage: a biform game model. Technological and Economic Development of Economy, 28(2), 463–482. https://doi.org/10.3846/tede.2022.16321
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Baron, D. P. (2001). Private politics, corporate social responsibility, and integrated strategy. Journal of Economics & Management Strategy, 10(1), 7–45. https://doi.org/10.1162/105864001300122548
Bosch-Badia, M. T., Montllor-Serrats, J., & Tarrazon, M. A. (2013). Corporate social responsibility from Friedman to Porter and Kramer. Theo-retical Economics Letters, 3(03), 11–15. https://doi.org/10.4236/tel.2013.33A003
Branco, M. C., & Rodrigues, L. L. (2006). Corporate social responsibility and resource-based perspectives. Journal of Business Ethics, 69(2), 111–132. https://doi.org/10.1007/s10551-006-9071-z
Brandenburger, A., & Stuart, H. (2007). Biform games. Management Science, 53(4), 537–549. https://doi.org/10.1287/mnsc.1060.0591
Brandenburger, A. M., Stuart, & Jr H. W. (1996). Value-based business strategy. Journal of Economics & Management Strategy, 5(1), 5–24. https://doi.org/10.1111/j.1430-9134.1996.00005.x
Burke, L., & Logsdon, J. M. (1996). How corporate social responsibility pays off. Long Range Planning, 29(4), 495–502. https://doi.org/10.1016/0024-6301(96)00041-6
Carroll, A. B., & Shabana, K. M. (2010). The business case for corporate social responsibility: A review of concepts, research and practice. Inter-national Journal of Management Reviews, 12(1), 85–105. https://doi.org/10.1111/j.1468-2370.2009.00275.x
Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), 497–505. https://doi.org/10.2307/257850
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Chatain, O., & Zemsky, P. (2007). The horizontal scope of the firm: Organizational tradeoffs vs. buyer-supplier relationships. Management Sci-ence, 53(4), 550–565. https://doi.org/10.1287/mnsc.1060.0680
China Shenhua Energy Company Limited. (2018). 2018 annual report. Retrieved July 18, 2021, from http://www.csec.com/zgshwwEn/dqbg/tzzgxList.shtml
Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence and implications. Academy of Management Review, 20(1), 65–91. https://doi.org/10.2307/258887
Du, S., Bhattacharya, C. B., & Sen, S. (2011). Corporate social responsibility and competitive advantage: Overcoming the trust barrier. Manage-ment Science, 57(9), 1528–1545. https://doi.org/10.1287/mnsc.1110.1403
Falkenberg, J., & Brunsæl, P. (2011). Corporate social responsibility: A strategic advantage or a strategic necessity? Journal of Business Ethics, 99(1), 9–16. https://doi.org/10.1007/s10551-011-1161-x
Feess, E., & Thun, J. H. (2014). Surplus division and investment incentives in supply chains: A biform-game analysis. European Journal of Oper-ational Research, 234(3), 763–773. https://doi.org/10.1016/j.ejor.2013.09.039
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Flammer, C., & Kacperczyk, A. (2019). Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine. Strategic Management Journal, 40(8), 1243–1267. https://doi.org/10.1002/smj.3025
Galbreath, J. (2009). Building corporate social responsibility into strategy. European Business Review, 21(2), 109–127. https://doi.org/10.1108/09555340910940123
Husted, B. W. (2005). Risk management, real options, corporate social responsibility. Journal of Business Ethics, 60(2), 175–183. https://doi.org/10.1007/s10551-005-3777-1
Kölbel, J. F., Busch, T., & Jancso, L. M. (2017). How media coverage of corporate social irresponsibility increases financial risk. Strategic Man-agement Journal, 38(11), 2266–2284. https://doi.org/10.1002/smj.2647
Lockett, A., & Thompson, S. (2001). The resource-based view and economics. Journal of Management, 27(6), 723–754. https://doi.org/10.1177/014920630102700608
MacDonald, G., & Ryall, M. D. (2004). How do value creation and competition determine whether a firm appropriates value? Management Sci-ence, 50(10), 1319–1333. https://doi.org/10.1287/mnsc.1030.0152
Makadok, R., & Ross, D. G. (2018). Losing by winning: The danger zone of adverse competitor replacement. Strategic Management Journal, 39(7), 1990–2013. https://doi.org/10.1002/smj.2910
Margolis, J., & Walsh, J. (2003). Misery loves companies: rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305. https://doi.org/10.2307/3556659
Maxfield, S. (2008). Reconciling corporate citizenship and competitive strategy: Insights from economic theory. Journal of Business Ethics, 80(2), 367–377. https://doi.org/10.1007/s10551-007-9425-1
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127. https://doi.org/10.5465/amr.2001.4011987
McWilliams, A., & Siegel, D. S. (2011). Creating and capturing value: Strategic corporate social responsibility, resource-based theory, and sus-tainable competitive advantage. Journal of Management, 37(5), 1480–1495. https://doi.org/10.1177/0149206310385696
Mellahi, K., Frynas, J. G., Sun, P., & Siegel, D. (2016). A review of the nonmarket strategy literature: Toward a multi-theoretical integration. Journal of Management, 42(1), 143–173. https://doi.org/10.1177/0149206315617241
Muller, A., & Kräussl, R. (2011). Doing good deeds in times of need: A strategic perspective on corporate disaster donations. Strategic Manage-ment Journal, 32(9), 911–929. https://doi.org/10.1002/smj.917
Peloza, J. (2009). The challenge of measuring financial impacts from investments in corporate social performance. Journal of Management, 35(6), 1518–1541. https://doi.org/10.1177/0149206309335188
Planer-Friedrich, L., & Sahm, M. (2020). Strategic corporate social responsibility, imperfect competition, and market concentration. Journal of Economics, 129(1), 79–101. https://doi.org/10.1007/s00712-019-00663-x
Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 80(12), 56–68.
Porter, M. E., & Kramer, M. R. (2006). The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–92.
Quairel-Lanoizelée, F. (2011). Are competition and corporate social responsibility compatible? The myth of sustainable competitive advantage. Society and Business Review, 6(1), 77–98. https://doi.org/10.1108/17465681111105850
Ross, D. G. (2018). Using cooperative game theory to contribute to strategy research. Strategic Management Journal, 39(11), 2859–2876. https://doi.org/10.1002/smj.2936
Ryall, M. D., & Sorenson, O. (2007). Brokers and competitive advantage. Management Science, 53(4), 566–583. https://doi.org/10.1287/mnsc.1060.0675
Shiu, Y. M., & Yang, S. L. (2017). Does engagement in corporate social responsibility provide strategic insurance-like effects? Strategic Manage-ment Journal, 38(2), 455–470. https://doi.org/10.1002/smj.2494
Stuart, Jr H. W. (2004). Efficient spatial competition. Games and Economic Behavior, 49(2), 345–362. https://doi.org/10.1016/j.geb.2004.01.002
Tan, J. (2009). Institutional structure and firm social performance in transitional economies: Evidence of multinational corporations in China. Jour-nal of Business Ethics, 86(2), 171. https://doi.org/10.1007/s10551-009-0193-y
Vilanova, M., Lozano, J. M., & Arenas, D. (2009). Exploring the nature of the relationship between CSR and competitiveness. Journal of Business Ethics, 87(1), 57–69. https://doi.org/10.1007/s10551-008-9812-2
Von Stackelberg, H. (1934). Marktform und gleichgewicht. J. Springer.
Wang, H., & Qian, C. (2011). Corporate philanthropy and corporate financial performance: The roles of stakeholder response and political access. Academy of Management Journal, 54(6), 1159–1181. https://doi.org/10.5465/amj.2009.0548
Wood, D. J. (1991). Corporate social performance revisited. Academy of Management Review, 16(4), 691–718. https://doi.org/10.2307/258977
Aguinis, H., Boyd, B. K., Pierce, C. A., & Short, J. C. (2011). Walking new avenues in management research methods and theories: Bridging micro and macro domains. Journal of Management, 37(2), 395–403. https://doi.org/10.1177/0149206310382456
Aguinis, H., & Glavas, A. (2012). What we know and don’t know about corporate social responsibility: A review and research agenda. Journal of Management, 38(4), 932–968. https://doi.org/10.1177/0149206311436079
Allinson, R. E. (2004). Circles within a circle: The condition for the possibility of ethical business institutions within a market system. Journal of Business Ethics, 53(1–2), 17–28. https://doi.org/10.1023/B:BUSI.0000039397.38390.32
Awaysheh, A., Heron, R. A., Perry, T., & Wilson, J. I. (2020). On the relation between corporate social responsibility and financial performance. Strategic Management Journal, 41(6), 965–987. https://doi.org/10.1002/smj.3122
Baron, D. P. (2001). Private politics, corporate social responsibility, and integrated strategy. Journal of Economics & Management Strategy, 10(1), 7–45. https://doi.org/10.1162/105864001300122548
Bosch-Badia, M. T., Montllor-Serrats, J., & Tarrazon, M. A. (2013). Corporate social responsibility from Friedman to Porter and Kramer. Theo-retical Economics Letters, 3(03), 11–15. https://doi.org/10.4236/tel.2013.33A003
Branco, M. C., & Rodrigues, L. L. (2006). Corporate social responsibility and resource-based perspectives. Journal of Business Ethics, 69(2), 111–132. https://doi.org/10.1007/s10551-006-9071-z
Brandenburger, A., & Stuart, H. (2007). Biform games. Management Science, 53(4), 537–549. https://doi.org/10.1287/mnsc.1060.0591
Brandenburger, A. M., Stuart, & Jr H. W. (1996). Value-based business strategy. Journal of Economics & Management Strategy, 5(1), 5–24. https://doi.org/10.1111/j.1430-9134.1996.00005.x
Burke, L., & Logsdon, J. M. (1996). How corporate social responsibility pays off. Long Range Planning, 29(4), 495–502. https://doi.org/10.1016/0024-6301(96)00041-6
Carroll, A. B., & Shabana, K. M. (2010). The business case for corporate social responsibility: A review of concepts, research and practice. Inter-national Journal of Management Reviews, 12(1), 85–105. https://doi.org/10.1111/j.1468-2370.2009.00275.x
Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), 497–505. https://doi.org/10.2307/257850
Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business and Society, 38(3), 268–295. https://doi.org/10.1177/000765039903800303
Chatain, O., & Zemsky, P. (2007). The horizontal scope of the firm: Organizational tradeoffs vs. buyer-supplier relationships. Management Sci-ence, 53(4), 550–565. https://doi.org/10.1287/mnsc.1060.0680
China Shenhua Energy Company Limited. (2018). 2018 annual report. Retrieved July 18, 2021, from http://www.csec.com/zgshwwEn/dqbg/tzzgxList.shtml
Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence and implications. Academy of Management Review, 20(1), 65–91. https://doi.org/10.2307/258887
Du, S., Bhattacharya, C. B., & Sen, S. (2011). Corporate social responsibility and competitive advantage: Overcoming the trust barrier. Manage-ment Science, 57(9), 1528–1545. https://doi.org/10.1287/mnsc.1110.1403
Falkenberg, J., & Brunsæl, P. (2011). Corporate social responsibility: A strategic advantage or a strategic necessity? Journal of Business Ethics, 99(1), 9–16. https://doi.org/10.1007/s10551-011-1161-x
Feess, E., & Thun, J. H. (2014). Surplus division and investment incentives in supply chains: A biform-game analysis. European Journal of Oper-ational Research, 234(3), 763–773. https://doi.org/10.1016/j.ejor.2013.09.039
Flammer, C., Hong, B., & Minor, D. (2019). Corporate governance and the rise of integrating corporate social responsibility criteria in executive compensation: Effectiveness and implications for firm outcomes. Strategic Management Journal, 40(7), 1097–1122. https://doi.org/10.1002/smj.3018
Flammer, C., & Kacperczyk, A. (2019). Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine. Strategic Management Journal, 40(8), 1243–1267. https://doi.org/10.1002/smj.3025
Galbreath, J. (2009). Building corporate social responsibility into strategy. European Business Review, 21(2), 109–127. https://doi.org/10.1108/09555340910940123
Husted, B. W. (2005). Risk management, real options, corporate social responsibility. Journal of Business Ethics, 60(2), 175–183. https://doi.org/10.1007/s10551-005-3777-1
Kölbel, J. F., Busch, T., & Jancso, L. M. (2017). How media coverage of corporate social irresponsibility increases financial risk. Strategic Man-agement Journal, 38(11), 2266–2284. https://doi.org/10.1002/smj.2647
Lockett, A., & Thompson, S. (2001). The resource-based view and economics. Journal of Management, 27(6), 723–754. https://doi.org/10.1177/014920630102700608
MacDonald, G., & Ryall, M. D. (2004). How do value creation and competition determine whether a firm appropriates value? Management Sci-ence, 50(10), 1319–1333. https://doi.org/10.1287/mnsc.1030.0152
Makadok, R., & Ross, D. G. (2018). Losing by winning: The danger zone of adverse competitor replacement. Strategic Management Journal, 39(7), 1990–2013. https://doi.org/10.1002/smj.2910
Margolis, J., & Walsh, J. (2003). Misery loves companies: rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305. https://doi.org/10.2307/3556659
Maxfield, S. (2008). Reconciling corporate citizenship and competitive strategy: Insights from economic theory. Journal of Business Ethics, 80(2), 367–377. https://doi.org/10.1007/s10551-007-9425-1
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127. https://doi.org/10.5465/amr.2001.4011987
McWilliams, A., & Siegel, D. S. (2011). Creating and capturing value: Strategic corporate social responsibility, resource-based theory, and sus-tainable competitive advantage. Journal of Management, 37(5), 1480–1495. https://doi.org/10.1177/0149206310385696
Mellahi, K., Frynas, J. G., Sun, P., & Siegel, D. (2016). A review of the nonmarket strategy literature: Toward a multi-theoretical integration. Journal of Management, 42(1), 143–173. https://doi.org/10.1177/0149206315617241
Muller, A., & Kräussl, R. (2011). Doing good deeds in times of need: A strategic perspective on corporate disaster donations. Strategic Manage-ment Journal, 32(9), 911–929. https://doi.org/10.1002/smj.917
Peloza, J. (2009). The challenge of measuring financial impacts from investments in corporate social performance. Journal of Management, 35(6), 1518–1541. https://doi.org/10.1177/0149206309335188
Planer-Friedrich, L., & Sahm, M. (2020). Strategic corporate social responsibility, imperfect competition, and market concentration. Journal of Economics, 129(1), 79–101. https://doi.org/10.1007/s00712-019-00663-x
Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 80(12), 56–68.
Porter, M. E., & Kramer, M. R. (2006). The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–92.
Quairel-Lanoizelée, F. (2011). Are competition and corporate social responsibility compatible? The myth of sustainable competitive advantage. Society and Business Review, 6(1), 77–98. https://doi.org/10.1108/17465681111105850
Ross, D. G. (2018). Using cooperative game theory to contribute to strategy research. Strategic Management Journal, 39(11), 2859–2876. https://doi.org/10.1002/smj.2936
Ryall, M. D., & Sorenson, O. (2007). Brokers and competitive advantage. Management Science, 53(4), 566–583. https://doi.org/10.1287/mnsc.1060.0675
Shiu, Y. M., & Yang, S. L. (2017). Does engagement in corporate social responsibility provide strategic insurance-like effects? Strategic Manage-ment Journal, 38(2), 455–470. https://doi.org/10.1002/smj.2494
Stuart, Jr H. W. (2004). Efficient spatial competition. Games and Economic Behavior, 49(2), 345–362. https://doi.org/10.1016/j.geb.2004.01.002
Tan, J. (2009). Institutional structure and firm social performance in transitional economies: Evidence of multinational corporations in China. Jour-nal of Business Ethics, 86(2), 171. https://doi.org/10.1007/s10551-009-0193-y
Vilanova, M., Lozano, J. M., & Arenas, D. (2009). Exploring the nature of the relationship between CSR and competitiveness. Journal of Business Ethics, 87(1), 57–69. https://doi.org/10.1007/s10551-008-9812-2
Von Stackelberg, H. (1934). Marktform und gleichgewicht. J. Springer.
Wang, H., & Qian, C. (2011). Corporate philanthropy and corporate financial performance: The roles of stakeholder response and political access. Academy of Management Journal, 54(6), 1159–1181. https://doi.org/10.5465/amj.2009.0548
Wood, D. J. (1991). Corporate social performance revisited. Academy of Management Review, 16(4), 691–718. https://doi.org/10.2307/258977