Voice but No Exit? the Effects of Social Activism Under Imperfectly Competitive Exchange

Ilze Kivleniece (INSEAD)
Bertrand V. Quelin (HEC Paris)

Abstract: Prior literature has shed important light on the effects of social or stakeholder activism on firm responsiveness, yet, has been limited to largely friction-less, competitive forms of exchange. In this study, we examine how social activism impacts firm responsiveness and end-user value outcomes in imperfectly competitive, hybrid forms of exchange. We argue that in an exchange characterized by imperfect competition and limited stakeholder “exit” mechanisms, social activism increases the associated exchange costs for the focal firm, resulting in reduced firm responsiveness to stakeholder demands and higher economic value loss (e.g. higher price) for the end-users. We further argue that this effect is moderated by the bargaining power of institutional actors, as well as the legitimacy and salience of activism domain. We find support for our hypotheses using a unique data from French municipal water contracts to private operators. Our paper highlights the “darker side” of social activism and suggests important boundary conditions to its effects, particularly in imperfectly competitive forms of exchange, carrying thereby both managerial and policy implications.