Competition and strategic responses to fundraising in donative markets

Gayle, Philip and Harrison, Teresa (2023): Competition and strategic responses to fundraising in donative markets. Forthcoming in: Review of Economics and Statistics No. forthcoming

Abstract

Nonprofit (NP) organizations rely on donations, obtained in a large competitive marketplace, to provide key social service goods. Yet most research focuses on competition in the output markets without considering inter- and intra-sector competition in the philanthropic markets where nonprofits make decisions about how much effort to put into fundraising. This paper develops and estimates a model of NP’s fundraising to secure donations. We highlight the strategic nature of the fundraising decision, show theoretically that rival NP’s fundraising responses can be either strategic complements or strategic substitutes and find empirically that responses are predominantly strategic substitutes. While donors are relatively inelastic to fundraising over our sample, NPs demonstrate nontrivial strategic responses to rival’s fundraising. These effects are stronger within than across sectors but, in totality, the across sector impacts are important to consider. We conduct several counterfactual exercises showing that a reduction in competition increases equilibrium NP-level fundraising but decreases total fundraising in the market. NP cooperation in fundraising also decreases equilibrium fundraising levels.

• Item Type: MPRA Paper
• English Title: Competition and Nonprofit's Strategic Responses: Evidence from Fundraising in Donative Markets
• Language: English
• Keywords: Fundraising; Donative Markets
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L30 - General

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