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Are Donors Afraid of Core Costs? Economies of Scale and Contestability in Charity Markets

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  • Carlo Perroni
  • Ganna Pogrebna
  • Sarah Sandford
  • Kimberley Scharf

Abstract

We study contestability in charity markets where non-commercial, not-for-profit providers supply a homogeneous collective good through increasing-returns-to-scale technologies. Unlike in the case of for-profit competition, the absence of price-based sales contracts for charities means that fixed costs can translate into entry barriers, protecting the position of an inefficient incumbent; or, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed-cost driven tradeoffs between efficiency and perceived risk can lead to inefficient technology adoption.

Suggested Citation

  • Carlo Perroni & Ganna Pogrebna & Sarah Sandford & Kimberley Scharf, 2019. "Are Donors Afraid of Core Costs? Economies of Scale and Contestability in Charity Markets," The Economic Journal, Royal Economic Society, vol. 129(622), pages 2608-2636.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:622:p:2608-2636.
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    File URL: http://hdl.handle.net/10.1093/ej/uez006
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    Cited by:

    1. Jan Schmitz, 2021. "Is Charitable Giving a Zero-Sum Game? The Effect of Competition Between Charities on Giving Behavior," Management Science, INFORMS, vol. 67(10), pages 6333-6349, October.

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