Working Paper: CEPR ID: DP8606
Authors: Kimberley Ann Scharf
Abstract: We study competition between nonprofit providers supplying a collective service through increasing-returns-to-scale technologies. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, pro- tecting the position of an inefficient incumbent. Moreover, when the goods provided are at least partly public in nature, buyers face individual incentives to divert donations towards providers that adopt low-fixed cost technologies, and so providers may forgo the adoption of more efficient technologies that require fixed costs. In these situations, government grants in support of core costs can have a non-neutral effect on entry, technology adoption, and industry performance.
Keywords: core funding; entry; not-for-profit organizations
JEL Codes: L1; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fixed costs (D24) | Barriers to entry (D43) |
| Barriers to entry (D43) | Inefficient incumbency (D61) |
| Fixed costs (D24) | Technology adoption failures (O33) |
| Technology adoption failures (O33) | Inferior technologies (O39) |
| Government grants (H81) | Entry of new providers (L26) |
| Government grants (H81) | Technology adoption (O33) |
| Fixed costs (D24) | Government funding (I22) |