0
$\begingroup$

In microeconomics textbook, there is always this notion of zero economic profit in perfect competition. We know that when people gets negative economic profit, they often leave the market. What I wonder is if there exists some NPOs that competes in everyday markets (such as food markets because it sounds like doable), earning say zero accounting profit, meaning negative economic profit. If there do exist, why aren't they driving other for profit competitiors out? Is this because not much people are investing or what?

$\endgroup$
  • $\begingroup$ What do you exactly mean by NPO in food market. Any example ? $\endgroup$ – Sub-Optimal Nov 28 '15 at 14:51
  • 1
    $\begingroup$ In a competitive market there are no barriers to entry and firms have very little if any power over price, so how might they drive another firm out? $\endgroup$ – DornerA Nov 28 '15 at 16:07
  • $\begingroup$ I can only imagine someone operating at negative economic profit in the short run unless they expected much higher returns in the future. Could you elaborate on what you mean when you say you feel food markets competing at NPO sounds "doable"? $\endgroup$ – Kitsune Cavalry Nov 28 '15 at 17:01
  • $\begingroup$ I believe, @Kun means NPO = Non-Profit (not for profit) organisation.... but they are not considered as agents in undergrad level micro books $\endgroup$ – london Nov 28 '15 at 17:22
  • 2
    $\begingroup$ I would challenge your premise by guessing that YMCA (non-profit I believe) gyms do drive out other low-end gyms. $\endgroup$ – Pburg Nov 28 '15 at 18:49
1
$\begingroup$

Theoretically it is possible but only if the non profit organization operates at a cost which is lower than all other existing as well as expected new players as in a free market anybody with a much lower cost can enter and offer a price lower than the NPO and still earns a profit. And what about other NPOs in the same field. If they have a lower cost they will certainly offer a lower price. Secondly the NPO should accepted by the consumers. Practically speaking the market has many more complexities such as existence of brands and the information that price suggests. A lower price means lower quality which may not be accepted by the consumers. For example I may start manufacturing and selling mobile handsets at zero profit but still I might not drive Apple out of the market. Also, the world is not much perfect. To start I would have to install a capacity that can produce at a cost lower than the existing players and then offer a lower price to drive them out.

But still you can have examples of apparent monopolies in markets say for example 'online information'. What do you think Wikimedia is ? It is an NPO.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.