Antitrust and the Not-for-Profit Sector

Abstract

Although the not-for-profit sector contributes greatly to aggregate output in many industries, there is little explicit analysis of the consequences of applying antitrust policy in this sector. This paper argues that the same incentives to collude exist in the non-profit sector as in the for-profit sector and that therefore, since competition is socially valuable regardless of the particular objectives of producers, the fact that antitrust law does not distinguish between the two sectors is efficient. The similarity in incentives derives from the fact that altruistic firms benefit from exploiting market power even when they would price below cost without regard to competition. Although the legal regulations governing the nonprofit sector limit the degree to which profits can be distributed, and therefore seek to reduce rents in a similar manner to antitrust laws, this nondistribution constraint does not obviate the need for antitrust in that sector. The argument for uniform antitrust doctrine in the two sectors extends to the exemptions from antitrust as well. In particular, patents (lawful monopolies intended to create incentives for innovation) stimulate innovation in the nonprofit sector only when they enable market power to be exploited, just as in the for-profit sector, and so the patent exemption from antitrust should be as broad in the nonprofit sector.