Are donors afraid of core costs? Economies of scale and contestability in charity markets

Carlo Perroni, Ganna Pogrebna, Sarah Sandford, Kimberley Scharf

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Abstract

We study contestability in charity markets where non-commercial, not-for-profit providers supply a homogeneous collective good through increasing-returns-to-scale technologies. Unlike in the case of for-profit competition, the absence of price-based sales contracts for charities means that fixed costs can translate into entry barriers, protecting the position of an inefficient incumbent; or, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed-cost driven tradeoffs between efficiency and perceived risk can lead to inefficient technology adoption.
Original languageEnglish
Pages (from-to)2608–2636
Number of pages29
JournalThe Economic Journal
Volume129
Issue number622
Early online date24 May 2019
DOIs
Publication statusPublished - Aug 2019

ASJC Scopus subject areas

  • Economics and Econometrics

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