Volume 5, Issue 2 - Special Symposium Issue on Nonprofit Competition

We examine the claim that nonprofit markets have become more crowded over time. A naïve examination of the data indicates that the number of nonprofits has increased rapidly over the past two decades. However, this approach does not account for increases in population, income, or other demand factors that would alter a population’s ability to support additional nonprofits. We attempt to quantify a standard unit of demand for nonprofits over time, by exploiting the panel nature of our data. Our findings indicate that nonprofit density, normalized for changes in demand, in 2005 is lower than it was in 1990. We are also able to examine the impact of incremental increases in population to absorb a nonprofit. Overall, we find that it takes far more people to support nonprofit entry in 2005 compared to 1990. It is likely that technological shifts in production and management techniques introduced since 1990 allow firms to serve larger numbers of people. Consistent with our findings, this type of change would result in fewer nonprofits per market, serving larger numbers of people. Our results therefore provide evidence that growth in the nonprofit sector has not necessarily implied increased density or greater competition in the sector.

In an era of dramatic financial challenges, pressure is growing for U.S. nonprofit organizations to consolidate. Yet, we know little about the current concentration of the sector and even less about the degree of competition in various nonprofit subsectors. In this paper we offer a detailed analysis of concentration patterns across the sector and analyze variations in these patterns by subsector and metropolitan areas. It is well known that measuring concentration is not identical to assessing effective competition and is but a starting point for a more thorough competitive analysis. An important distinction is made between the concentration of resources within larger subsector organizations and inequality in the distribution of resources across those organizations. Some subsectors may be concentrated yet behave competitively because resources are distributed relatively equally among several large organizations. By contrast, other concentrated subsectors may behave less competitively because resources are very unequally controlled by a few organizations. Understanding the patterns of both concentration and inequality in the nonprofit sector is likely a prerequisite to drawing defensible conclusions about the degrees of competition in the sector and the desirability of further consolidation. This analysis has implications for both public policy and philanthropy. It bears on the issues of whether antitrust policy should be forcefully applied to the nonprofit sector, whether government funding programs should encourage nonprofit consolidation or competition, and whether philanthropic institutions should implore nonprofit organizations to consolidate further or to compete more vigorously.

The purpose of this study is to address the ambiguities in the application of anti-trust regulations to the nonprofit sector. We first survey policy tools and their diverse historical usage in nonprofit and mixed markets, specifically in professional associations, hospitals, and education. This analysis informs the development of a typology of anti-competitive nonprofit markets which is used to classify the three historical examples into eight traits. Finally, this typology is applied to three new markets – animal shelters, thrift stores, and soup kitchens – which have less in common with purely for-profit markets and have little or no discussion in antitrust literature. We find that the nonprofit form per se does not indicate an absence of anticompetitive practices or antitrust concerns; however, certain combinations of attributes – such as purely donative revenues and an absence of pricing ability – make the threat of anticompetitive practice less oppressive.

Changes in the scope and structure of public sector funding over the past few decades have had significant effects on the organizational environment in which nonprofit organizations operate. This article presents an integrative model within which the empirical literature regarding government funding effects on nonprofits is reviewed. This model conceptualizes the effects as deriving from two discrete forces – supply dynamics that have immediate population-level influences and a set of implementation dynamics that shape competition via organizational effects. This integrated model provides coherence to the literature and supplies a framework for future research.

This paper extends research on nonprofit advocacy by exploring the relationship between competition, nonprofit mission, and policy advocacy. Previous research indicates that charitable nonprofits serving specialized populations, such as immigrants or veterans, often engage in policy advocacy. This could benefit marginalized populations whose interests are articulated by nonprofit organizations. However, population ecology theory in organizational sociology predicts that generalist organizations will outperform specialists in uncertain environments. At the very times when nonprofits serving specialized constituencies should focus on advocacy the most – for example to protect funding in competitive policy environments – they may be least able to do so. Drawing on survey data from charitable nonprofits in Boston, Massachusetts, we find that competition and specialization have direct positive effects on nonprofit engagement in advocacy and the use of formal and grassroots tactics. However, the effect of competition is weakened by nonprofit specialization. Nonprofit specialists that report higher competition for resources are less likely to participate in policy advocacy and use fewer formal and grassroots tactics. Specialists that report higher service delivery competition use fewer formal advocacy tactics. These findings suggest that we should be cautious in looking to the nonprofit sector, particularly organizations serving specialized populations, to provide constituent representation through policy advocacy in competitive environments.

This paper extends the theoretical framework of nonprofit activity in three-sector economies. Perspectives from existing theories on nonprofit organizations and the agenda setting literature are simultaneously considered. The nonprofit form provides one solution to the causes of market failure that are inherent to the different classes of goods discussed by previous theory. However, issue salience can lead to public policies that correct market failures. Such policies can lead to greater competition for tax-supported funding and to for-profit entry. This combined framework allows for the integration of the various theories on the existence of nonprofit organizations under one theoretical lens. It also yields a framework to empirically analyze industry dynamics and inter-organizational competition specifically within nonprofit and mixed-sector markets. The temporal variation and relative strength of issue salience in various mission areas in which nonprofits participate are particularly considered. This theoretical perspective leads to several important implications for industrial structure, nonprofit competition for resources and market share, public policy, advocacy, contracting, and public–private partnerships as the issues nonprofits address evolve over time.

Social Return on Investment (SROI) metrics are a new tool available to nonprofit and social enterprise organizations to demonstrate the effectiveness and efficiency of their programs. After a short overview of three dominant methods for calculating the SROI, a case examining the implementation of an SROI study at a nationally recognized Boston-based nonprofit operating workforce development programs is presented to illuminate the methodological dilemmas across the arc of an SROI study. The case analysis centers on four key decision points in the implementation of the SROI study: identification of stakeholders, development of a method for estimating social value creation, determination of the time horizons, and selection of the discount rates. Next, to highlight the challenges in making comparisons across organizations, the second source of data is presented—a set of Yale SOM MBA student assignments conducting an SROI on a written case study found in the literature on workforce development. The student project results showcase how even when conducting SROI assessments on the same focal organization, the SROI calculation can vary widely depending on the outcome of the four decision points delineated above. The paper consequently offers two levels of analysis. First, it provides a detailed methodological overview of the reigning approaches to conducting an SROI. Second, it provides an assessment of the challenges to using SROI as a performance metric at this stage of the field’s development. Implications for use of the SROI are discussed from both the perspective of funders and the perspective of nonprofit organizations.