Common ownership and green managerial delegation contract in a vertically related market

This study considers a vertically related market where an upstream firm supplies an intermediate good to competing downstream firms that may adopt environmental corporate social responsibility (ECSR). When downstream firm owners, guided by common ownership, appoint green managerial delegation contract, we investigate strategic interaction between common ownership and ECSR, demonstrating that downstream firms may engage in ECSR, which can reduce intermediate prices, while common ownership may increase market competition through ECSR. Our analysis shows that Cournot firms adopt ECSR only when common ownership is sufficiently high or product substitutability is sufficiently low, whereas Bertrand firms always adopt ECSR. Cournot competition can yield higher welfare than Bertrand competition when the degree of common ownership is sufficiently high (low) and product substitutability is sufficiently low (high). As environmental damage increases, Cournot competition yields much higher welfare than Bertrand competition. Finally, we compare outcomes under discriminatory input prices and mandatory ECSR guidelines, and discuss the policy implications.