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

Corporate social responsibility (CSR) has become a key focus in management literature and practice, with scholars debating its value and importance. However, corporate social irresponsibility (CSI), while having significant negative influence, has received less attention. This paper aims to fill this gap by investigating the dynamic interaction between firms' CSI behaviors (those not violating laws) and consumers' CSR perception in a consumer market. Existing research focuses either on firm-level impacts of CSI on performance or on static individual-level consumer responses. This study bridges this gap by adopting an individual-level evolutionary perspective, integrating insights from strategic management and marketing. The study hypothesizes that firms' choices between CSR-compliant and CSI strategies occur through a co-evolutionary process with consumers, with firm outcomes depending on individual interactions. An evolutionary game model is used to examine this dynamic interaction, considering the value capture theory and focusing on medium to large companies in consumer markets.

While CSR has been extensively studied, CSI has received less scholarly attention until recently. The existing literature explores CSI's definition, scope, antecedents, and consequences, often considering consumer perception and response. Two main research streams exist: one from strategic management examining the firm-level relationship between CSI and performance (generally finding negative effects), and another from marketing focusing on individual-level factors influencing consumer perception and reaction to CSI. However, these perspectives often lack a dynamic, interactive view of the interplay between firms and consumers in shaping CSI behaviors. This study addresses this gap by developing an evolutionary model.

The researchers developed an asymmetric two-population evolutionary game model to study the dynamic interaction between firms' CSI behaviors and consumers' CSR perception. The model uses two populations: firms and consumers. Firms can strategically choose between CSR-compliant (C) and CSI (I) strategies, while consumers can have strong (S) or weak (W) CSR perceptions. The payoff matrix is based on value capture theory, considering private profit for firms and utility for consumers. For CSR-compliant firms, profit increases with price and decreases with production costs. For CSI firms, costs are lower, but profits depend on consumer perception: higher with weak CSR perception consumers and lower (possibly even negative due to transaction costs) with strong CSR perception consumers. For consumers, utility depends on firm strategy and their CSR perception. Replicator dynamics, a common method in evolutionary game theory, is used to analyze the evolutionary equilibrium of the system. The model's dynamic equations describe the change in proportions of firms and consumers adopting each strategy over time. The authors identify evolutionary stable strategies (ESS) based on the model's parameters and initial conditions, using Jacobian matrix analysis to determine the stability of the system. Two scenarios are identified, each leading to different ESS and evolutionary paths. Finally, numerical examples using Python and sensitivity analyses are conducted to further explore the model's implications.

The analysis reveals two main scenarios leading to different evolutionary stable strategies: **Scenario 1:** When *p*(1 − *α*) + *βτ* > *k* > *p*(1 − *α*), there are two possible ESS depending on initial conditions: (1,1) (CSR-compliant firms, strong CSR perception consumers) and (0,0) (CSI firms, weak CSR perception consumers). The (1,1) outcome – a healthy market – is reached when initial conditions fall within the OBCD area (Figure 1). **Scenario 2:** When *k* > *p*(1 − *α*) + *βτ*, the only ESS is (0,0), regardless of initial conditions. This suggests that an unhealthy market dominated by CSI behavior is inevitable in this scenario. Numerical simulations support these findings. In Case 1 (Scenario 1), the evolutionary stable outcome depended on the initial state of the system. In Case 2 (Scenario 2), the outcome was always (0,0). Sensitivity analysis showed that consumer bargaining power significantly influences the system's outcome. Low consumer bargaining power leads to the (0,0) ESS, while high consumer bargaining power opens the possibility of (1,1), but only if the initial conditions fall within the OBCD area (Table 5). Increasing consumer willingness to pay for CSR enlarges the OBCD area in scenario 1, thereby making a healthy market more likely. However, the added willingness to pay for CSR doesn’t affect the ESS itself.

The findings address the research question by showing how the dynamic interaction between firms and consumers shapes the prevalence of CSI. The results demonstrate that the existence of a market characterized by firms engaging in CSR and consumers having strong CSR perception is contingent upon several factors: high consumer bargaining power, low transaction costs for CSR-compliant strategies relative to the benefits of CSI, and favorable initial conditions. The significance of these results lies in their implications for understanding the micro-level mechanisms driving CSI behaviors, and the crucial role of consumers in shaping firms’ CSR-related strategies. It shows that the lack of legal constraints alone isn’t sufficient to prevent CSI; rather, a favorable market environment and a strong initial presence of CSR-minded actors are necessary. The path-dependent nature of the evolutionary equilibrium highlights the importance of initial conditions and self-reinforcing dynamics in shaping market outcomes.

This study provides a novel, dynamic perspective on firms' CSI behaviors, integrating insights from strategic management and marketing. It reveals the crucial role of consumer bargaining power and initial market conditions in shaping the evolution of firms' strategies towards either CSR or CSI. Future research could extend this model by incorporating structured population models to capture regional variations in CSI adoption, and by introducing heterogeneity in firms' and consumers' abilities and payoffs to reflect real-world market complexities. Further investigations into the role of regulatory frameworks in influencing the dynamics of CSI behaviors and consumer responses would be particularly valuable.

The study focuses on CSI behaviors that do not violate the law, limiting its generalizability to situations involving illegal activities. The model assumes a simplified representation of consumer and firm interactions, potentially neglecting nuances present in real-world markets. The assumption of bounded rationality and imitation-based learning might not fully capture the complexity of decision-making processes. The analysis uses a simplified consumer choice model; in reality, consumers might consider other factors beyond CSR/CSI concerns when choosing products. The study's focus on medium-to-large consumer market firms limits the applicability of the findings to other firm types or industries.