University competition: Symmetric or asymmetric quality choices?
In this paper we model competition between two publicly financed and identical universities deciding on quality and on admission standards. The education offered by the two universities is differentiated horizontally and vertically. If horizontal differentiation dominates, the Nash equilibrium is symmetric, and the two universities offer the same quality levels. If vertical differentiation dominates, the Nash equilibrium is asymmetric, and the high quality university attracts the better students. Symmetric and asymmetric equilibria may also coexist. We highlight the importance of three driving forces behind these results: a single crossing condition, the peer group effect, and the students’ mobility costs. We also compare the monopoly and the duopoly case. The model we use is an extension of Del Rey’s  model.
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