Tuition Too High? Blame Competition

36 Pages Posted: 27 Aug 2023 Last revised: 2 Dec 2023

See all articles by Oleg V. Pavlov

Oleg V. Pavlov

Worcester Polytechnic Institute (WPI)

Evangelos Katsamakas

Gabelli School of Business, Fordham University

Date Written: 2023

Abstract

In this article, we develop a feedback theory that includes reinforcing and balancing feedback effects that emerge when colleges compete for reputation, applicants, and tuition revenue. The feedback theory is replicated in a formal duopoly model consisting of two competing colleges. An independent ranking entity determines the relative order of the colleges. College applicants choose between the two colleges based on the rankings and the financial aid offered by the colleges. Contrary to the conventional wisdom that competition lowers prices and benefits consumers, our simulations show that competition between academic institutions for resources and reputation leads to tuition escalation that negatively affects students and their families. Four of the five scenarios – rankings, a capital campaign, facilities improvements, and an excellence campaign – increase college tuition, institutional debt, and expenditures per student; only the scenario of ignoring the rankings decreases these measures. By referring to the feedback structure of academic competition, the article makes several recommendations for controlling tuition inflation. This article contributes to the literature on the economics of higher education and illustrates the value of feedback economics in developing economic theory.

Keywords: tuition inflation; higher education; feedback economics; duopoly; system dynamics; academic competition

JEL Classification: C63, D24, D25, D43, L3, L13

Suggested Citation

Pavlov, Oleg V. and Katsamakas, Evangelos, Tuition Too High? Blame Competition ( 2023). Journal of Economic Behavior and Organization, Vol. 213, 2023, Available at SSRN: https://ssrn.com/abstract=4548946

Oleg V. Pavlov (Contact Author)

Worcester Polytechnic Institute (WPI) ( email )

100 Institute Road
Worcester, MA 01609
United States

HOME PAGE: http://https://www.wpi.edu/people/faculty/opavlov

Evangelos Katsamakas

Gabelli School of Business, Fordham University ( email )

140 West 62nd Street
New York, NY 10023
United States

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