Edited by Bruce A. Seaman and Dennis R. Young
Chapter 10: Pricing Strategies
Bruce A. Seaman Introduction While nonprofit organizations have more complex objectives than merely maximizing profit, and rely upon mixed revenue sources beyond earned income, pricing strategies are important for at least significant subsets of such organizations. In particular, nonprofit hospitals, nursing homes and other health care providers, performing arts organizations, nonprofit and academic journal publishers, and colleges and universities price their services and engage in increasingly complex strategies, while museums and social service organizations frequently debate the merits of charging prices of any kind. Some nonprofits, especially those engaged in the delivery of social and emergency services such as the Red Cross, CARE and the Salvation Army would frequently find the charging of positive prices antithetical to their very purpose, although this too depends on the specific products and services, and sometimes the cultural setting, e.g. the American Red Cross charges for blood products from its blood centers (Jacobs and Wilder, 1984), and food banks in Europe charge positive prices while similar institutions in the USA do not. This chapter explores the pricing strategies employed in these distinctly different segments of the nonprofit sector, with an emphasis on better understanding the roles played by demand, capacity constraints and congestion, cost and cost uncertainty, subsidies, competitive versus market power considerations, complex objective functions, and the forces of tradition versus innovation. How these factors affect prices in the nonprofit versus the for-profit sectors, and whether the adoption of various pricing strategies is fundamentally different in the two sectors, is also addressed briefly,...
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