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The University in the Marketplace: Some Insights and Some Puzzles

In: Studies of Supply and Demand in Higher Education

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  • Michael Rothschild
  • Lawrence J. White

Abstract

Higher education has many of the attributes of a competitive industry. Many enterprises compete for inputs and sell similar outputs to a great variety of buyers. The competitive perspective has not been much used in the analysis of higher education. In this paper we find such a point of view yields both insights and puzzles. The familiar "stand alone" test from industrial organization casts doubt on the claim that undergraduate education subsidizes graduate education in the large research university; since institutions that sell both graduate and undergraduate education survive in competition with institutions that sell only undergraduate education, the claim of cross subsidization is hard to maintain. We note that the analysis of the use of prices to regulate admission to universities is complex because students are both inputs and outputs of the educational process. We note, but do not explain, some conspicuous failures of universities to use incentives and prices. Perhaps most interesting are the failures of research universities to reward excellent teaching (which has a clear" market value) and the failure of elite institutions, particularly professional schools, to exploit their preeminent market positions by charging a tuition which begins to capture the rents that graduation confers.

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This chapter was published in:

  • Charles T. Clotfelter & Michael Rothschild, 1993. "Studies of Supply and Demand in Higher Education," NBER Books, National Bureau of Economic Research, Inc, number clot93-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6096.

    Handle: RePEc:nbr:nberch:6096

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    1. Roth, Alvin E, 1984. "The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 991-1016, December.
    2. Dale W. Jorgenson & Barbara M. Fraumeni, 1992. "The Output of the Education Sector," NBER Chapters, in: Output Measurement in the Service Sectors, pages 303-341 National Bureau of Economic Research, Inc.
    3. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, November.
    4. Estelle James, 1978. "Product Mix and Cost Disaggregation: A Reinterpretation of the Economics of Higher Education," Journal of Human Resources, University of Wisconsin Press, vol. 13(2), pages 157-186.
    5. Michael S. McPherson & Gordon C. Winston, 1991. "The Economics of Cost, Price and Quality in U.S. Higher Education," Williams Project on the Economics of Higher Education DP-13, Department of Economics, Williams College.
    6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
    7. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    8. Nelson, Richard R & Winter, Sidney G & Schuette, Herbert L, 1976. "Technical Change in an Evolutionary Model," The Quarterly Journal of Economics, MIT Press, vol. 90(1), pages 90-118, February.
    9. Hope Corman, 1983. "Postsecondary Education Enrollment Responses by Recent High School Graduates and Older Adults," Journal of Human Resources, University of Wisconsin Press, vol. 18(2), pages 247-267.
    10. Winship C. Fuller & Charles F. Manski & David A. Wise, 1982. "New Evidence on the Economic Determinants of Postsecondary Schooling Choices," Journal of Human Resources, University of Wisconsin Press, vol. 17(4), pages 477-498.
    11. Oi, Walter Y, 1971. "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 85(1), pages 77-96, February.
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    Cited by:
    1. Dennis W. Carlton & Gustavo E. Bamberger & Roy J. Epstein, 1995. "Antitrust and Higher Education: Was There a Conspiracy to Restrict Financial Aid?," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 131-147, Spring.
    2. Laurie Bates & Rexford Santerre, 2000. "A Time Series Analysis of Private College Closures and Mergers," Review of Industrial Organization, Springer, vol. 17(3), pages 267-276, November.
    3. Peter Michaelis, 2004. "Education, Research and the Impact of Tuition Fees - A Simple Model of the University," Discussion Paper Series 265, Universitaet Augsburg, Institute for Economics.
    4. Caroline M. Hoxby, 2009. "The Changing Selectivity of American Colleges," NBER Working Papers 15446, National Bureau of Economic Research, Inc.
    5. Balazs Varadi, 2001. "Multiproduct Cost Function Estimation for American Higher Education: Economies of Scale and Scope," IEHAS Discussion Papers 0111, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    6. Singell, Larry D. & Tang, Hui-Hsuan, 2013. "Pomp and circumstance: University presidents and the role of human capital in determining who leads U.S. research institutions," Economics of Education Review, Elsevier, vol. 32(C), pages 219-233.
    7. Joseph Calhoun & David Kamerschen, 2010. "The impact of governing structure on the pricing behavior and market structure of public institutions of higher education in the U.S," International Review of Economics, Springer, vol. 57(3), pages 317-333, September.
    8. Siow, Aloysius, 1997. "Some evidence on the signalling role of research in academia," Economics Letters, Elsevier, vol. 54(3), pages 271-276, July.
    9. Dahlia K. Remler & Elda Pema, 2009. "Why do Institutions of Higher Education Reward Research While Selling Education?," NBER Working Papers 14974, National Bureau of Economic Research, Inc.
    10. William R. Johnson & Sarah Turner, 2009. "Faculty without Students: Resource Allocation in Higher Education," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 169-89, Spring.
    11. Ortmann, Andreas & Squire, Richard, 2000. "A game-theoretic explanation of the administrative lattice in institutions of higher learning," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 377-391, November.

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