Non-Profit Firms and the Provision of Durable Goods

Abstract

A simple linear demand two-period durable goods is analyzed where the durable good is provided by private non-profit organization (NPO). A novel flexible objective function is utilized that allows for both the “commercial” and “social concern” aspects of NPOs. The model indicates NPO’s will not typically provide the efficient cost-minimizing durability in sales markets. Indeed, if the NPO cannot credibly commit to its own stakeholders it will manufacture output with less durability than a pure for-profit seller. We show the NPO’s level of commitment ability and social concern with its stakeholders is crucial for determining the amount of “planned obsolescence” that would prevail if NPOs expand into durable goods markets. Interestingly, the social concern commonly cited for the existence of NPOs, is a double edged sword since it may cause more or less product obsolescence.