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Entry, donor market size, and competitive conduct among nonprofit firms

Author

Listed:
  • Gayle, Philip G.
  • Harrison, Teresa D.
  • Thornton, Jeremy

Abstract

This paper empirically characterizes competitive behavior among charitable nonprofits where prices and output are difficult to observe. Using a model tailored to donative nonprofits and an empirical methodology that exploits cross-sectional variation in market size and various measurable demographic and cost characteristics applicable for nonprofits, this paper estimates the threshold number of potential donors required for nonprofit economic viability in five major charitable sectors. We find that our sample markets generally reach competitive levels once five or more nonprofits in a given nonprofit sector are observed. The paper offers several possible interpretations of these findings and directions for future research.

Suggested Citation

  • Gayle, Philip G. & Harrison, Teresa D. & Thornton, Jeremy, 2017. "Entry, donor market size, and competitive conduct among nonprofit firms," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 294-318.
    • Handle: RePEc:eee:indorg:v:50:y:2017:i:c:p:294-318
    DOI: 10.1016/j.ijindorg.2016.10.003
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    References listed on IDEAS

    as
    1. Catherine Schaumans & Frank Verboven, 2015. "Entry and Competition in Differentiated Products Markets," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 195-209, March.
    2. Stefano DellaVigna & John A. List & Ulrike Malmendier, 2012. "Testing for Altruism and Social Pressure in Charitable Giving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 1-56.
    3. Jean Marie Abraham & Martin Gaynor & William B. Vogt, 2007. "Entry And Competition In Local Hospital Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 265-288, June.
    4. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
    5. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
    6. Harrison Teresa D. & Laincz Christopher A, 2008. "Entry and Exit in the Nonprofit Sector," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, July.
    7. Bilodeau, Marc & Slivinski, Al, 1997. "Rival charities," Journal of Public Economics, Elsevier, vol. 66(3), pages 449-467, December.
    8. Aldashev, Gani & Verdier, Thierry, 2010. "Goodwill bazaar: NGO competition and giving to development," Journal of Development Economics, Elsevier, vol. 91(1), pages 48-63, January.
    9. Susan Rose-Ackerman, 1982. "Charitable Giving and “Excessive†Fundraising," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(2), pages 193-212.
    10. Timothy F. Bresnahan & Peter C. Reiss, 1990. "Entry in Monopoly Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(4), pages 531-553.
    11. Jeremy Thornton, 2008. "Competition, Contractibility, and the Market for Donors to Nonprofits," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(1), pages 215-246, May.
    12. repec:feb:framed:0087 is not listed on IDEAS
    13. Feigenbaum, Susan, 1987. "Competition and Performance in the Nonprofit Sector: The Case of U.S. Medical Research Charities," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 241-253, March.
    14. Harrison Teresa & Thornton Jeremy, 2014. "Too Many Nonprofits? An Empirical Approach to Estimating Trends in Nonprofit Demand Density," Nonprofit Policy Forum, De Gruyter, vol. 5(2), pages 213-229, October.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Iris Grant & Iris Kesternich & Johannes Van Biesebroeck, 2022. "Entry Decisions And Asymmetric Competition Between Non‐Profit And For‐Profit Homes In The Long‐Term Care Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 631-670, May.
    2. Gallier, Carlo & Goeschl, Timo & Kesternich, Martin & Lohse, Johannes & Reif, Christiane & Römer, Daniel, 2023. "Inter-charity competition under spatial differentiation: Sorting, crowding, and spillovers," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 457-468.
    3. Teresa D. Harrison & Daniel J. Henderson & Deniz Ozabaci & Christopher A. Laincz, 2023. "Does one size fit all in the non‐profit donation production function?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(2), pages 373-402, April.
    4. Gayle, Philip & Harrison, Teresa, 2023. "Competition and Strategic Responses to Fundraising in Donative Markets," School of Economics Working Paper Series 2024-9, LeBow College of Business, Drexel University, revised 01 Aug 2024.
    5. Kesternich, Iris & Schumacher, Heiner & Van Biesebroeck, Johannes & Grant, Iris, 2020. "Market size and competition: A “hump-shaped” result," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    6. Mayo, Jennifer, 2021. "How do big gifts affect rival charities and their donors?," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 575-597.
    7. Chen Jiawei & Sacks Michael, 2018. "Going Along or Going Independent? A Dynamic Analysis of Nonprofit Alliances," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(2), pages 1-20, April.
    8. Rebecca Cleary & Lauren Chenarides, 2022. "Food retail profits, competition, and the Great Recession," Agribusiness, John Wiley & Sons, Ltd., vol. 38(3), pages 557-578, July.

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    More about this item

    Keywords

    Nonprofit; Competition; Donative firms; Entry thresholds;
    All these keywords.

    JEL classification:

    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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