Implication of Incomplete Markets for Corporate Social Responsibility and Competitive Strategy

Abstract
This paper explores the theory and illustrates the managerial implications of complete and incomplete markets for corporate strategy and corporate socialresponsibility. Market imperfections including externalities, asymmetric information or compromised competition motivate corporate social responsibility. At the same time, traditional approaches to corporate strategy based on industry analysis may imply exploiting or sustaining market imperfections. Assuming markets are complete complicates finding a theoretical basis for happily uniting CSR and above average profits. Assuming markets are incomplete undermines traditional industry analysis or resource-based approaches to corporate strategy because incomplete markets hinder accurate calculation of the net present value of different resource commitments. Cases illustrate how theories of firm performance based on incomplete markets provide a new managerial framework to guide strategy and improve social welfare
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