Scandinavian Working Papers in Economics

Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

No 1/2011: Nonprofit and profit companies in monopolistic competition

Morten Skak ()
Additional contact information
Morten Skak: Department of Business and Economics, Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

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

JEL-codes: I31; I38; L10; L13; L21; L25; L31; L33; L38

23 pages, January 1, 2011

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