Price Discrimination through Corporate Social Responsibility

A common form of Corporate Social Responsibility (CSR) by firms is to agree to donate a fixed portion of private good revenues to a charitable cause. In this paper we explore a new rationale for such CSR. We argue that linking private good purchase with charitable donations allows the firm to price discriminate between altruistic consumers who wish to make charitable donations out of their income and non-altruistic consumers who do not place any value on such donations. The disparity in altruistic propensities translates into a difference in private good value and thus limits the firm’s ability to extract consumer surplus in the private good market. Linking private good sales to charity brings down the variation in private good value and enables the firm to appropriate greater surplus. We also show that when advertising the linked good increases the visibility of charitable donations made through its purchase and if altruistic consumers care about exhibiting their altruistic acts, linked donations crowd out direct donations for these consumers. However, since the linked good brings in new donations from non-altruistic consumers who never donate out of their income, it is possible for CSR to increase aggregate charitable donations.