NONPROFIT ORGANIZATIONS AS MULTISIDED PLATFORMS

Nonprofit organizations provide various important social goods and services. Consequently, management and strategy scholars are increasingly interested in the nonprofit sector. Existing theories of nonprofit organizations posit multiple profit-deviating objective functions to explain below-cost pricing but these theories raise problems for management and strategy. Importantly, the literature provides scant guidance on how nonprofit managers should select objectives. We propose that nonprofits can be modeled as profit-maximizers serving a two-sided market, also known as a multisided platform (MSP). We present a formal model to demonstrate how MSPs, so influential in the technology sector, can also explain nonprofit behavior. In our model of donative nonprofits, donors comprise one side of the market and recipients of services comprise the other side. This article addresses a long-standing theoretical question about what nonprofits optimize. Our approach also gives rivals the analytical tools to compete against nonprofits. The theory we propose can be used to explain nonprofit types and the differences between nonprofits and for-profits, addressing some of the important limitations of existing nonprofit theory.

Automated summary

Nonprofit organizations play an important role in providing social goods and services, attracting the interest of management and strategy scholars. However, existing theories do not offer clear guidance on objective selection for nonprofit managers. This article proposes a profit-maximization model that treats nonprofits as two-sided market platforms. This new model explains nonprofit behavior and addresses limitations of current theories.