Lower Prices for Customers, and Less Charity Care? The Prospects for Mixed-Market Competition With Nonprofit and Hybrid Firms

Abstract

In recent years, the emergence of new legal forms allowing for-profit firms to incorporate with a formal commitment to both profit and social purpose has disrupted the traditional American business-charity dichotomy. The arrival of these hybrid firms can be expected to affect the functioning of markets and poses a potential challenge to the role played by large nonprofits that provide quasi-public services such as education and health care. We construct duopoly models of competition between a nonprofit firm and either a traditional for-profit firm or a hybrid firm, simultaneously choosing output levels of a homogeneous good. We show that when the nonprofit competes with a hybrid firm it becomes less competitive in the sense that its output level contracts, it raises less net revenue with which to fund charity care, and it is more easily driven out of the market.