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Competition and Mergers among Nonprofits

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  • Prüfer, J.

    (Tilburg University, Tilburg Law and Economics Center)

Abstract

Should mergers among nonprofit organizations be regulated differently than mergers among for-profit firms? The relevant empirical literature is highly controversial, the theoretical literature is scarce. We analyze the question by modeling duopoly competition with quality-differentiated goods. We compare welfare effects of mergers between firms with the effects of mergers between nonprofits dominated by consumers, workers, suppliers, and pure donors. We find that mergers both among firms and among most types of nonprofits do not increase welfare. Mergers among consumerdominated nonprofits, however, can improve welfare. These results imply for competition law and regulation that “nonprofit” might be too crude a label for organizations with varying goals. Consequently, mergers among certain nonprofit organizations should not necessarily be treated in the same way as mergers among for-profit firms – a notion that is absent in current merger guidelines both in the US and the EU.

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Bibliographic Info

Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2007-022.

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Date of creation: 2007
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Handle: RePEc:dgr:kubtil:2007022

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Web page: http://www.tilburguniversity.nl/tilec/

Related research

Keywords: Nonprofits; Mergers; Antitrust; Governance; Owner Objectives; Notfor- profit Sector; Organizational Choice;

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References

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  1. Henry Hansmann, 1981. "Nonprofit Enterprise in the Performing Arts," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 341-361, Autumn.
  2. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  3. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
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  5. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  8. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
  9. Herbst, P. & Prüfer, J., 2007. "Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice," Discussion Paper 2007-003, Tilburg University, Tilburg Law and Economic Center.
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  12. Patrick Francois, 2002. "Not-for-profit Provision of Public Services," The Centre for Market and Public Organisation 02/060, Department of Economics, University of Bristol, UK.
  13. Cohen, Joel W. & Spector, William D., 1996. "The effect of Medicaid reimbursement on quality of care in nursing homes," Journal of Health Economics, Elsevier, vol. 15(1), pages 23-48, February.
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  15. Anup Malani & Tomas Philipson & Guy David, 2003. "Theories of Firm Behavior in the Nonprofit Sector. A Synthesis and Empirical Evaluation," NBER Chapters, in: The Governance of Not-for-Profit Organizations, pages 181-216 National Bureau of Economic Research, Inc.
  16. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  17. Leone, Andrew J. & Van Horn, R. Lawrence & Wedig, Gerard J., 2005. "Abnormal returns and the regulation of nonprofit hospital sales and conversions," Journal of Health Economics, Elsevier, vol. 24(1), pages 113-135, January.
  18. Chou, Shin-Yi, 2002. "Asymmetric information, ownership and quality of care: an empirical analysis of nursing homes," Journal of Health Economics, Elsevier, vol. 21(2), pages 293-311, March.
  19. Grabowski, David C. & Hirth, Richard A., 2003. "Competitive spillovers across non-profit and for-profit nursing homes," Journal of Health Economics, Elsevier, vol. 22(1), pages 1-22, January.
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  22. Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
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Cited by:
  1. Filistrucchi, L. & Prüfer, J., 2013. "Faithful Strategies: How Religion Shapes Nonprofit Management," Discussion Paper 2013-052, Tilburg University, Center for Economic Research.
  2. Katalin Katona & Marcel Canoy, 2013. "Welfare standards in hospital mergers," The European Journal of Health Economics, Springer, vol. 14(4), pages 573-586, August.

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