Collaborative collective action in sustainability initiatives

Abstract

Sustainability is important but costly for most companies. This paper explores the collective action problem facing competing brands regarding whether to collaborate (co-opetition) in sustainability initiatives. We develop a game-theoretic framework to study co-opetition by considering their market sizes, consumer segments, and loyalties, as well as the change in profit margin and investment costs when participating. We characterize the circumstances where collaborative collective action may take place, which is mainly driven by the large brand. However, when one brand becomes too large, the possibility of collaboration vanishes. A prisoner’s dilemma (collective inaction) and multi-equilibrium outcomes may arise, though some may be circumvented or intervened to attain the desired co-opetition outcome for the social good. The non-monotone reactions of the profits to various market factors imply that both the direct effect of the parameters and, more importantly, the indirect effect of the rival’s strategy should be taken as a whole when contemplating one brand’s best response to market changes. In our generalized multiple-brand extension, we find that a new type of multi-equilibrium outcome may occur but more importantly, full collaboration among a large number of competitors is unlikely to happen without interventions. Furthermore, when incorporating pricing power, we find that a higher price premium enhances the larger brand’s incentive to adopt sustainability, reduces the likelihood of collective inaction, and increases the prevalence of asymmetric equilibria where only one brand participates.