Tuesday, October 30, 2007

Competition and Mergers Among Nonprofits

Posted by D. Daniel Sokol

Jens Prufer of the University of Tilburg Department of Economics questions whether the analysis in mergers among nonprofits should be different than among profit maximizing firms in his paper Competition and Mergers Among Nonprofits.

ABSTRACT: Should mergers among nonprofit organizations be regulated differently than mergers among for-profit firms? The relevant empirical literature is highly controversial, the theoretical literature is scarce. I analyze the question by modeling duopoly competition with quality-differentiated goods. I compare welfare effects of mergers between firms with the effects of mergers between nonprofits dominated by consumers, workers, suppliers, and pure donors respectively. I find that mergers both among firms and among most types of nonprofits do not increase welfare. Mergers among consumer-dominated nonprofits, however, can improve welfare. These results imply for competition law and regulation that ?nonprofit? might be too crude a label for organizations with varying goals. Consequently, mergers among certain nonprofit organizations should not necessarily be treated in the same way as mergers among for-profit firms ? a notion that is absent in current merger guidelines both in the US and the EU.


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