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Scale Scale Economies in Nonprofit Provision, Technology Adoption and Entry

Author

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  • Scharf, Kimberley

    (University of Warwick; CEPR)

Abstract

We study competition between nonprofit providers that supply a collective service through increasing-returns-to-scale technologies under conditions of free entry. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, protecting the position of an inefficient incumbent. Moreover, when providers supply goods that are at least partly public in nature, they may be unable to sustain the adoption of more efficient technologies that feature fixed costs, because buyers (private donors) face individual incentives to divert donations towards charities that adopt inferior, lower-fixed-cost technologies. These incentives may give rise to a technological race to the bottom, where nonprofit providers forgo opportunities to exploit scale economies. In these situations, government grants in support of core costs can have a nonneutral effect on entry, technology adoption, and industry performance.

Suggested Citation

  • Scharf, Kimberley, 2011. "Scale Scale Economies in Nonprofit Provision, Technology Adoption and Entry," CAGE Online Working Paper Series 45, Competitive Advantage in the Global Economy (CAGE).
  • Handle: RePEc:cge:wacage:45
    as

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/45.2011_scharf.pdf
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    References listed on IDEAS

    as
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    6. repec:hrv:faseco:33078971 is not listed on IDEAS
    7. David Easley & Maureen O'Hara, 1983. "The Economic Role of the Nonprofit Firm," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 531-538, Autumn.
    8. Tomas J. Philipson & Richard A. Posner, 2009. "Antitrust in the Not-for-Profit Sector," Journal of Law and Economics, University of Chicago Press, vol. 52(1), pages 1-18, February.
    9. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    10. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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