Entry, donor market size, and competitive conduct among nonprofit firms

•We empirically model competition between nonprofits who rely heavily on donations•We infer competitive behavior from donor market size changes necessary to induce entry•We find that nonprofit markets reach competitive equilibrium at five or more firms•These findings are largely consistent across several nonprofit industries.

This paper empirically characterizes competitive behavior among charitable nonprofits where prices and output are difficult to observe. Using a model tailored to donative nonprofits and an empirical methodology that exploits cross-sectional variation in market size and various measurable demographic and cost characteristics applicable for nonprofits, this paper estimates the threshold number of potential donors required for nonprofit economic viability in five major charitable sectors. We find that our sample markets generally reach competitive levels once five or more nonprofits in a given nonprofit sector are observed. The paper offers several possible interpretations of these findings and directions for future research.