DP7978 Entry and fixed costs in charitable sectors

Author(s):	Kimberley Scharf
Publication Date:	September 2010
Keyword(s):	Charities, core funding, not-for-profit organizations
JEL(s):	L1
Programme Areas:	Public Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=7978

Fixed costs that are not sunk do not translate into entry barriers against for-profit competitors. We show that in the case of non-commercial, not- for-profit providers, the presence of fixed costs may protect the position of an inefficient incumbent. In these situations, successfully contesting the position of incumbents may require new providers to adopt a for- profit organizational form ? notwithstanding the moral hazard problem that this might entail when quality of provision is difficult to monitor ? or, alternatively, to secure core funding from government or from a large private donor.