Firms increasingly invest in corporate social responsibility (CSR) as a competitive strategy. Cause Marketing (CM) is a type of CSR where a firm donates to a cause to attract prosocial customers. Empirical evidence has established that firms linked with a cause add value to customers, charge higher prices, and gain a competitive advantage. CM investments (donations) broadly belong to two categories: Transactional CM (T-CM), where firms donate a fraction of their revenue from each unit sold to a cause; and Non-Transactional CM (N-CM), where firms contribute to a cause independent of customer purchases. While the literature has mainly focused on T-CM, we study the implications of the “choice” of the CM type under competition for various stakeholders, including firms, consumers, total donations, and social welfare. First, we study a situation where the CM types are exogenously given, and firms set their prices and donations to maximize profit. Next, we extend the model to endogenize the CM type choice to the firm’s problem. We show that T-CM is structurally different from N-CM: when both firms choose the same CM type, T-CM donations are independent of the competition intensity, while N-CM donations are asymmetrically impacted by competition. Specifically, the firm with a more visible/effective CM increases its N-CM contributions, and the firm with less effectiveness reduces its N-CM donations. We also show that both firms achieve a higher profit when they adopt T-CM rather than N-CM. However, when they “choose” their CM types, they may opt for N-CM. Thus, the firms’ problem is akin to a prisoner’s dilemma where the firms choose a strategy that hurts them in fear of deviation from the other firm. We also find that the CM type choice has important implications for society and total donations: while increasing competition intensity and CM effectiveness improves consumer surplus, it may reduce firm profits, total donations, and social welfare. As such, firms and policymakers should consider the implications of the CM type choice when planning
