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Antitrust and Higher Education: Was There a Conspiracy to Restrict Financial Aid?

  • Dennis W. Carlton
  • Gustavo E. Bamberger
  • Roy J. Epstein

In 1991, the Antitrust Division sued MIT and the eight schools in the Ivy League under Section 1 of the Sherman Act for engaging in a conspiracy to fix the prices that students pay. The Antitrust Division claimed that the schools conspired on financial aid policies in an effort to reduce aid and raise their revenues. The schools justified their cooperative behavior by explaining that it enabled them to concentrate aid on only those in need and thereby helped the schools to achieve their goals of need-blind admission coupled with financial aid to all needy admittees. This paper analyzes the empirical determinants of tuition and finds that the schools' agreement had no effect on average tuition paid. The paper also analyzes the appropriate application of the antitrust laws to not-for-profit institutions. The Court of Appeals found that it is appropriate for the courts to consider non-profit institutions' justifications for collective action (in this case, to enable the poor to attend school) under a Rule of Reason. The Court of Appeals overturned the District Court's opinion against MIT, citing the failure of the District Court to properly apply the Rule of Reason.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4998.

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Date of creation: Jan 1995
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Publication status: published as Rand Journal of Economics, 26, Spring 1995, pp. 131-147.
Handle: RePEc:nbr:nberwo:4998
Note: IO
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  1. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  2. Tjalling C. Koopmans & Martin J. Beckmann, 1955. "Assignment Problems and the Location of Economic Activities," Cowles Foundation Discussion Papers 4, Cowles Foundation for Research in Economics, Yale University.
  3. Michael Rothschild & Lawrence J. White, 1991. "The University in the Marketplace: Some Insights and Some Puzzles," NBER Working Papers 3853, National Bureau of Economic Research, Inc.
  4. Dennis W. Carlton & Gustavo E. Bamberger & Roy J. Epstein, 1994. "Antitrust and Higher Education," University of Chicago - George G. Stigler Center for Study of Economy and State 107, Chicago - Center for Study of Economy and State.
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