Entry and fixed costs in charitable sectors
AbstractFixed costs that are not sunk do not translate into entry barriers against for-profit competitors. We show that in the case of non-commercial, not- for-profit providers, the presence of fixed costs may protect the position of an inefficient incumbent. In these situations, successfully contesting the position of incumbents may require new providers to adopt a for- profit organizational form – notwithstanding the moral hazard problem that this might entail when quality of provision is difficult to monitor – or, alternatively, to secure core funding from government or from a large private donor.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7978.
Date of creation: Sep 2010
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