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Edited by Bruce A. Seaman and Dennis R. Young
Chapter 7: Markets with Competition between For-profit and Nonprofit Firms
7 Markets with competition between for-profit and nonprofit firms Eleanor Brown Introduction The competitive advantages of nonprofit firms and for-profit firms are different enough to raise the question of how the two types of firms come to coexist in substantial numbers in significant markets. Nonprofit firms can receive donations and preferential tax treatment; for-profits can raise capital in equity markets. Neither set of advantages seems decisive in any of several markets, including nursing homes, day care, hospitals and hospice care. Credit unions hold their own against banks, while for-profit providers make incursions into microcredit markets and secondary and higher education. Economic models that address these ‘mixed markets’ tend to rely on at least one of two generic features, scarcity and heterogeneity, to explain stable coexistence under competitive conditions. The two emphases have different implications for the performance of mixed markets. Other models of mixed markets rely on barriers to entry that limit competition and leave room for both types of firms, or invoke historical evolution with no claim that the present mix of industries is likely to continue. In this chapter, I provide an overview of economic thinking about the characteristics of markets in which for-profit and nonprofit firms might coexist, and the consequences of that coexistence for market outcomes such as the price, quantity and quality of service provision. In addition to the theoretical work on the extent and performance of mixed markets that is the focus of this chapter, there is a large empirical literature focusing on the...
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