Competition and Performance in the Nonprofit Sector: The Case of US Medical Research Charities

Abstract

This paper develops a model of nonprofit firm behavior which links nonprofit market structure, firm-specific characteristics and firm performance. A method for defining nonprofit industries is proposed in order to generate measures of intramarket competition for donations in one specific philanthropic industry-the medical research charity industry. These measures and other data are subsequently used to estimate structure-performance relationships implied by the behavioral model. Analysis of administrative, fundraising and research allocations shows that market structure is indeed important in determining the behavior of charities. Increases in market concentration lead to reduced funding for research projects and greater discretionary expenditures.