Corporate Social Responsibility and Consumer Choice: Lessons from the Milk Boycott

Abstract

We study the impact of a boycott on one of the largest Korean dairy producers, triggered by the exposure of the firm's unethical management practices, on its product sales and prices. We find empirical evidence that the boycott had substantial and long lasting consequences. First, consumer utility from the boycotted products decreased significantly, reflecting consumers' strong willingness to take part in the collective action. In addition, consumers with lower income or larger family size participated in the boycott more actively. Second, our discrete choice demand model, which addresses both heterogenous effects of the boycott and price endogeneity, estimates that sales of the two boycotted products decreased by 7.9 million liters in total during the 10-month post-boycott period, whereas sales of competing non-boycotted products increased by 3 million liters in the same period. Third, the decrease in sales and revenue was less severe for the product for which the boycotted firm sharply cut the price; our counterfactual analysis predicts that the firm's post-boycott revenue loss would have been higher by 75.8 percent had the price cut not been made. Our findings emphasize top-level managers' role in fostering an ethical organizational culture within the firm as well as taking proper and timely countermeasures to curb losses incurred by a boycott.

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