Strategic environmental corporate social responsibility in a vertically differentiated duopoly

Abstract We investigate firms' strategic incentives to adopt environmental corporate social responsibility (ECSR) in the presence of quality–cost differences within a vertically differentiated duopoly. We find that (i) the low‐quality firm chooses a higher (lower) ECSR level than the high‐quality firm when the low‐quality firm has a relatively more (less) quality–cost advantage than the high‐quality firm, (ii) both firms achieve higher profits by adopting ECSR compared to the case with no ECSR, leading both firms to endogenously choose ECSR regardless of quality–cost differences, and (iii) when both firms can commit to cooperative ECSR, the resulting strategic level is higher than under non‐cooperative ECSR.