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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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Suggested Citation

  • Michael Rothschild & Lawrence J. White, 1993. "The University in the Marketplace: Some Insights and Some Puzzles," NBER Chapters,in: Studies of Supply and Demand in Higher Education, pages 11-42 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:6096
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    References listed on IDEAS

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    Cited by:

    1. 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;Happiness Economics and Interpersonal Relations (HEIRS), vol. 57(3), pages 317-333, September.
    2. Caroline M. Hoxby, 2009. "The Changing Selectivity of American Colleges," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 95-118, Fall.
    3. 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.
    4. Siow, Aloysius, 1997. "Some evidence on the signalling role of research in academia," Economics Letters, Elsevier, vol. 54(3), pages 271-276, July.
    5. 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.
    6. Cunningham, Brendan M., 2009. "Faculty: Thy administrator's keeper? Some evidence," Economics of Education Review, Elsevier, vol. 28(4), pages 444-453, August.
    7. 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.
    8. 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.
    9. 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 169-189, Spring.
    10. Laurie Bates & Rexford Santerre, 2000. "A Time Series Analysis of Private College Closures and Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(3), pages 267-276, November.
    11. 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.
    12. Masten, Scott E., 1995. "Old school ties: financial aid coordination and the governance of higher education," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 23-47, September.
    13. 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.

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