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Welfare impacts of a non-profit firm in mixed commercial markets

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  • Goering, Gregory E.
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    Abstract

    Utilizing a model that allows for the welfare of the commercial NPO's stakeholders directly in terms of their consumer surplus, and indirectly in terms of NPO profits, we explore the impact of changes in the NPO's "social concern" for consumers on market efficiency. Three separate Cournot mixed market scenarios are analyzed: competition between the NPO and a private for-profit firm, competition between the NPO and a public firm, and a market scenario that includes all three firms. We find that the technical efficiency of the NPO vis-à-vis the profit maximizer is crucial in determining whether social welfare rises or falls as the NPO places more weight on their stakeholders' surplus. In particular, if the NPO is less technically efficient than the profit maximizer or public firm, somewhat paradoxically social welfare may fall as the NPO shows a greater social concern for consumers. In other words, a movement away from pure profit maximizing behavior by a NPO may well be detrimental in these mixed commercial markets. We also show the additional sources of revenue available to a NPO may decrease the overall welfare in these mixed market situations.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Systems.

    Volume (Year): 32 (2008)
    Issue (Month): 4 (December)
    Pages: 326-334

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    Handle: RePEc:eee:ecosys:v:32:y:2008:i:4:p:326-334

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    Keywords: Mixed markets Technical efficiency Non-profit firms;

    References

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    1. Vitaliano, Donald F. & Toren, Mark, 1994. "Cost and efficiency in nursing homes: a stochastic frontier approach," Journal of Health Economics, Elsevier, Elsevier, vol. 13(3), pages 281-300, October.
    2. Jean-Luc Migué & Gérard Bélanger & William Niskanen, 1974. "Toward a general theory of managerial discretion," Public Choice, Springer, Springer, vol. 17(1), pages 27-47, March.
    3. Jerald SCHIFF & Burton WEISBROD, 1991. "Competition Between For-Profit And Nonprofit Organizations In Commercial Markets," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 62(4), pages 619-640, October.
    4. Gregory E. Goering, 2007. "The strategic use of managerial incentives in a non-profit firm mixed duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 83-91.
    5. Patrick Francois, 2001. "Employee Care and the Role of Nonprofit Organizations," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 157(3), pages 443-, September.
    6. Burton A. Weisbrod, 1997. "The future of the nonprofit sector: Its entwining with private enterprise and government," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(4), pages 541-555.
    7. Patrick Francois, 2003. "Not-For-Profit Provision of Public Services," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(486), pages C53-C61, March.
    8. C. Du Bois & R. Caers & M. Jegers & C. Schepers & S. De Gieter & R. Pepermans, 2004. "Agency problems and unrelated business income of non-profit organizations: an empirical analysis," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(20), pages 2317-2326.
    9. Matthias Benz, 2005. "Not for the Profit, but for the Satisfaction? - Evidence on Worker Well-Being in Non-Profit Firms," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 155-176, 04.
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    Cited by:
    1. Marco, Marini & Alberto, Zevi, 2010. "'Just one of us': Consumers playing oligopoly in mixed markets," MPRA Paper 31213, University Library of Munich, Germany, revised 30 May 2011.
    2. Kopel, Michael & Brand, Björn, 2012. "Socially responsible firms and endogenous choice of strategic incentives," Economic Modelling, Elsevier, vol. 29(3), pages 982-989.
    3. Saha, Souresh, 2014. "Firm's objective function and product and process R&D," Economic Modelling, Elsevier, vol. 36(C), pages 484-494.
    4. Wang, Leonard F.S. & Wang, Jean, 2009. "Environmental taxes in a differentiated mixed duopoly," Economic Systems, Elsevier, vol. 33(4), pages 389-396, December.

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