Pricing and corporate social responsibility investment strategies for a manufacturer under information asymmetry

Abstract

AbstractWe consider a supply chain comprising a dominant manufacturer and a supplier where both firms are socially concerned. The corporate social responsibility (CSR) cost of the supplier is private information. The manufacturer can determine its sales price before the supplier starts production (committed pricing) or postpone its pricing decision until after receiving components from the supplier (noncommitted pricing). Moreover, the manufacturer can determine its CSR investment level before (ex ante CSR investment) or after (ex post CSR investment) the supplier. Four scenarios are investigated to examine the optimal pricing and CSR investment strategies of the manufacturer. We find the following: First, under a noncommitted pricing strategy, the manufacturer always prefers ex post CSR investment. However, the reverse holds under the committed pricing strategy. Second, under the ex post CSR investment strategy, committed pricing benefits the manufacturer for most parameter combinations whereas noncommitted pricing benefits the manufacturer when facing consumers with high CSR awareness and low price awareness. Under the ex ante CSR investment strategy, the manufacturer always prefers committed pricing. Finally, the joint committed pricing with ex ante CSR investment strategy is optimal for the manufacturer.