On the Interrelationship between Market Structure, Consumer Reaction, and Responsible Sourcing

Consumer reaction to (non)responsible sourcing (i.e., boycotting non-responsible firms and paying more for certified versions of products) determines firms’ sourcing strategies in a given market. Based on evidence from the marketing literature, in this paper we assume that the type of consumer reaction itself is determined and led by how firms position themselves in the market. We model this interrelationship for markets with either substitutable or non-substitutable brands. Our model and analysis yielded two key results: in both markets, dual sourcing is the common strategy for many firms; and improving supply chain transparency together with increasing the number of socially conscious consumers are effective means to improve firms’ responsible sourcing. The former enriches our understanding of why dual sourcing is abundant in all markets, though existing models only predict that outcome for markets with non-substitutable brands. The latter highlights that improving these positive factors in all markets will only lead to positive outcomes, which contrasts with existing models’ insights that warn of negative consequences. Our analysis also shows that moving from duopoly or oligopoly towards perfect competition in markets can lead to exclusive responsible sourcing faster