Nonprofit and for-profit competition with public alternatives in an urban setting with congestion

This theoretical analysis describes nonprofit-public and for-profit-public competition in an urban setting. The model resembles a Hotelling game with endogenous-firm location, prices, and facility congestion. Because residents have free mobility, rent is also endogenous. The analysis identifies the optimal spatial and pricing configuration, against which nonprofit-public and for profit-public competition are compared. If there is no congestion, both types of public-private competition are equivalent if profits are ignored. Neither type of public-private competition is optimal. However when congestion is present, nonprofit-public competition improves overall welfare in comparison to for-profit-public competition. The analysis identifies optimal subsidies and zoning rules that induce welfare-improving behavior on the part of either type of competition.