Nonprofit and profit companies in monopolistic competition

Morten Skak

No 1/2011, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: A homogenous goods market with nonprofit and profit companies engaged in monopolistic competition is proposed. In a short run equilibrium, entrance of more companies of both types increases consumer surplus and reduces company profit. However, nonprofit companies under a long run zero profit constraint will act inefficiently and have higher marginal costs than profit companies. From this follows that more funds for donations to nonprofit companies reduce the welfare to be gained on the market. Depending on the size of donations, nonprofit companies may have higher, the same or lower (quality) output than profit companies.

Keywords: Nonprofit; Market structure; Monopolistic competition; Efficiency; Funding; Donations; Grants; Welfare (search for similar items in EconPapers)
JEL-codes: I31 I38 L10 L13 L21 L25 L31 L33 L38 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-01-01
New Economics Papers: this item is included in nep-com and nep-ind
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