Donor-to-Nonprofit Online Marketplace: An Economic Analysis of the Effects on Fund-Raising

Online intermediaries have recently started offering database services to donors and certification services to nonprofit organizations through the Internet. We conceptualize a Donor-to-Nonprofit (D2N) marketplace as an online intermediary that offers these two services and examine its effect on fundraising strategies of nonprofit organizations using an analytical model based on spatial competition under incomplete information with donor search. We characterize the signaling equilibria where certification of quality conveys information about organizational effectiveness in generating socially valuable services. Interestingly, the emergence of the D2N marketplace may lead to a drop in total net fundraising revenues in the market, despite the fact that the intermediary's database service eliminates search costs for some donors. We also explain why such a marketplace may deliberately lower the accuracy of its certification process.