Where is Aggressive Price Competition Taking Higher Education?

It is increasingly clear that price competition is escalating in the market for higher education. We attempt to understand how price competition would work in higher education and explore the likely long run equilibrium structure of prices in that context. We draw inferences using both microeconomic theory and historical parallels found in the market for graduate education. Our analysis suggests that negative prices are likely to prevail at the wealthiest colleges and universities. Using data from IPEDS we estimate the resulting distribution of prices and school quality. While price competition may increase attendance by low income students at the wealthiest colleges and universities, it is unclear how they will fare at schools with middling wealth and resources. Further, schools with less accumulated wealth will be particularly vulnerable to any ensuing price competition. While our conclusions must be interpreted with caution, they do suggest some cause for alarm.