Firms' corporate social irresponsibility behaviors during interplay with consumers in evolutionary game models

The study addresses when and why firms choose socially irresponsible (CSI) versus socially responsible (CSR) strategies in interactions with consumers, particularly where CSI does not violate laws. While CSR has been widely studied, CSI remains underexplored, and existing work often takes static perspectives—management studies emphasize firm-level outcomes and risks, while marketing focuses on individual consumers’ perceptions and reactions. This leaves a gap in understanding the dynamic, micro-level mechanisms of firms’ CSI behavior during ongoing market interactions. The paper proposes that firms’ CSR/CSI strategies and consumers’ CSR perception coevolve through repeated transactions and imitation. It aims to model this interaction using evolutionary game theory, focusing on medium to large consumer-market firms under conditions where irresponsible behavior can reduce costs and sometimes prices, and consumers vary in CSR sensitivity. The importance lies in revealing conditions that lead to either a healthy market (CSR-compliant firms, strong CSR perception) or a morality trap (CSI strategies, weak CSR perception), and highlighting the roles of industrial structure, bargaining power, and path dependence.

The conceptual background contrasts extensive CSR research with relatively limited attention to CSI. Strategic management studies often find CSI harms performance due to stakeholder reactions, though outcomes can be context-dependent (e.g., market economy type, competition, firm capability). Some evidence suggests firms practicing both CSR and CSI can sometimes perform better than those doing neither. Marketing research emphasizes consumers’ subjective judgments of CSI based on moral norms, causal attributions, and perceived impacts, with heterogeneity arising from culture, ideology, and demographics. CSI can evoke moral emotions that motivate punishment. The paper defines CSI following Armstrong (1977) as choices benefiting one party at the system’s expense, and focuses on lawful yet irresponsible behaviors (e.g., harmful additives, misleading practices) that fall in regulatory gray areas but are salient to consumers. It distinguishes roles of auditors (law-based enforcement) and consumers (media-informed perceptions and switching), arguing that for visible medium/large firms in consumer markets, firm–consumer interaction is paramount. The review motivates a dynamic, interactive, micro-level approach integrating strategy and marketing perspectives to explain CSI occurrence, the influence of industrial structure (bargaining power), and path dependence.

The authors develop an asymmetric two-population evolutionary game between firms and consumers grounded in value capture theory. Two firm strategies: CSR-compliant (C) and irresponsible (I). Two consumer types: strong CSR perception (S) and weak CSR perception (W). Payoffs: For a CSR-compliant firm, profit p_c increases with price p>0 and decreases with cost c (p>c>0). For an irresponsible firm, effective cost decreases to c−k>0. If facing weak-perception consumers, it reduces price to αp (0<α<1) and earns αp−c+k, which exceeds compliant profit under given restrictions; if facing strong-perception consumers, profit is αp_c + k − βτ, where τ is transaction cost from trust problems and β is consumers’ bargaining power (0<β<1). Consumer payoffs: A strong-perception consumer earns v + w − p with a CSR firm (v is base utility, w added willingness to pay for CSR), and v − αp − τ(1−β) with a CSI firm. A weak-perception consumer earns v − p with a CSR firm and v − αp with a CSI firm. Restrictions: p(1−α) < k < c; τ < v − c. These ensure CSI is profitable only under specified conditions and transaction costs remain bounded by total value created. The payoff matrix (firms first, consumers second) reflects these payoffs. Dynamics: Let x be the share of CSR firms and y the share of strong-perception consumers. Using replicator dynamics with well-mixed populations, bounded rationality, imitation, and no mutation, the system evolves by dx/dt = x(1−x)(yβτ + αp − k) and dy/dt = y(1−y)({x[w + τ(1−β)] − τ(1−β)}). Stationary points satisfy F(x)=0, F(y)=0. Two parametric scenarios arise: Scenario 1: p(1−α)+βτ > k > p(1−α), yielding five stationary points including an interior point x* = [k − p(1−α)]/(βτ), y* = τ(1−β)/[w + τ(1−β)], and the corners (0,0), (0,1), (1,0), (1,1). Scenario 2: k − p(1−α) > βτ, with only the four corners as stationary points. Stability is determined via the Jacobian’s determinant and trace; local ESS differ by scenario and initial conditions. Numerical simulations: Implemented in Python to illustrate basins of attraction under two market structures with identical base parameters but different β (consumer bargaining power). Parameters used: v=15, p=10, c=5, w=2, k=2, α=0.9, τ=4. Case 1 (β=0.5) satisfies Scenario 1; Case 2 (β=0.1) satisfies Scenario 2. Sensitivity analysis varies β and w while holding other parameters fixed to measure the OBCD area (size of initial-state region converging to (CSR, Strong)).

• Two evolutionarily stable outcomes (ESS) emerge depending on parameters and initial conditions: (CSR, Strong CSR perception) and (CSI, Weak CSR perception).
• Scenario 1 (p(1−α)+βτ > k > p(1−α)): Both ESS are possible. The realized equilibrium is path dependent. If the initial state lies in the region OBCD, the system converges to (1,1); otherwise to (0,0). Stronger consumer bargaining power (higher β) and higher willingness to pay for CSR (w) expand the OBCD region, increasing the likelihood of a healthy market.
• Scenario 2 (k > p(1−α)+βτ): The unique ESS is (CSI, Weak), i.e., firms adopt CSI and consumers have weak CSR perception, regardless of initial conditions.
• Increased consumer bargaining power β reduces the profitability advantage of CSI via higher effective transaction costs for irresponsible firms (βτ), shifting dynamics toward CSR.
• Added willingness to pay for CSR (w) does not change the set of ESS but increases the basin of attraction for (CSR, Strong) when β is sufficiently high.
• Numerical examples confirm theory: With v=15, p=10, c=5, w=2, k=2, α=0.9, τ=4: • Case 1 (β=0.5, Scenario 1): initial (x,y) = (0.1,0.1) or (0.45,0.45) → (CSI, Weak); (0.55,0.55) or (0.9,0.9) → (CSR, Strong). • Case 2 (β=0.1, Scenario 2): all tested initial states converge to (CSI, Weak).
• Sensitivity (selected values from Table 5 for v=15, p=10, c=5, k=2, α=0.9, τ=4): • For β in (0,0.25): outcome is always (CSI, Weak); OBCD area = 0 for w=1 or 2. • For β=0.3: OBCD area = 0.215 (w=1) and 0.292 (w=2). • For β=0.4: OBCD area = 0.335 (w=1) and 0.415 (w=2). • For β=0.5: OBCD area = 0.417 (w=1) and 0.5 (w=2).
• Path dependence is a salient feature: initial proportions of CSR firms and strong-perception consumers critically shape the long-run outcome under Scenario 1.
• Policy-relevant insight: strengthening consumer bargaining power and supporting consumer willingness to pay for CSR increase the probability of a healthy market and reduce the prevalence of CSI when it is lawful.

The findings address the central question of when firms adopt CSI versus CSR in ongoing interactions with consumers. The model shows that CSI persists and can become the unique long-run outcome when firms’ cost advantage from irresponsibility (k − p(1−α)) exceeds the countervailing transaction costs imposed by empowered consumers (βτ). Conversely, when consumer bargaining power is sufficiently strong, CSR can become self-sustaining, but only if the system begins with enough CSR firms and strong-perception consumers—highlighting path dependence. This clarifies micro mechanisms behind observed mixed empirical results: industrial structure (which shapes β), transaction frictions (τ), and consumers’ valuation of CSR (w) jointly determine whether markets gravitate toward a morality trap or a healthy equilibrium. The results are relevant for strategy (understanding incentives to choose CSI/CSR), marketing (the role of consumer perception and WTP), and policy (tools to shift bargaining power and information environments). They underscore that, in legal gray areas, market-based forces mediated by consumer power and perception can regulate or entrench CSI.

The paper contributes an interactive, evolutionary perspective on CSI, integrating strategic management and marketing insights. It demonstrates that two long-run market states exist: a healthy market with CSR-compliant firms and consumers with strong CSR perception, and a morality trap with CSI strategies and weak perception. Which state prevails depends on industrial structure (consumer bargaining power), transaction costs, consumers’ willingness to pay for CSR, and initial conditions. Strengthening consumers’ bargaining power and increasing WTP for CSR expand the basin of attraction for the healthy equilibrium but do not alter the set of ESS. Future research directions include: (1) structured population models to capture localization and network effects; (2) introducing heterogeneity in abilities and payoffs among firms and consumers; (3) examining regulatory frameworks and enforcement institutions alongside consumer dynamics to understand combined impacts on CSI/CSR evolution.

• Focuses on CSI behaviors that do not violate laws; results may not generalize to illegal CSI subject to regulatory enforcement.
• Assumes well-mixed populations, bounded rationality, imitation learning, and no mutation; does not capture localization, network structures, or innovation in strategies.
• Centers on medium to large firms in consumer markets; findings may differ for small firms or B2B settings.
• Excludes explicit roles of auditors, governments, and NGOs in the baseline model, though they may materially influence CSI dynamics.
• Simplifies payoffs with homogeneous agents; does not model heterogeneity in capabilities, information, or preferences.
• Numerical simulations are illustrative with selected parameters; no empirical data are analyzed.