The Property Rights Theory of the Firm and Mixed Competition: A Counter-Example in the US Health Care Industry

Daniel Friesner and Robert Rosenman

International Journal of the Economics of Business, 2001, vol. 8, issue 3, 437-450

Abstract: We present a counter-example to the conventional property rights theory of the firm, which indicates that not-for-profit firms are incapable of directly competing against strictly profit-maximizing firms without the presence of barriers to entry, outside assistance, changing profit status or economies of scale and scope. We employ a modified Bertrand duopoly model of mixed competition in the health care industry to show that, even when these four conditions do not hold, not-for-profit firms may still be able to compete and possibly dominate the market. Consequently, market fundamentals, rather than market intervention, regulation or uncertainty, determine a not-for-profit provider's success or failure in the market. A necessary requirement is that the not-for-profit manager must care about non-pecuniary benefits but be willing to accept lower than normal returns. Moreover, under specific cost and demand conditions, a not-for-profit's ability to compete may actually be enhanced by increasing its production of non-pecuniary benefits.

Keywords: Duopoly; Quality; Competition; Non-PECUNIARY Benefits; Not-FOR-PROFIT (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/13571510110081204

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