The University in the Marketplace: Some Insights and Some Puzzles

45 Pages Posted: 8 Aug 2007 Last revised: 16 Jul 2010

See all articles by Michael Rothschild

Michael Rothschild

Princeton University; National Bureau of Economic Research (NBER)

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Date Written: September 1991

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.

Suggested Citation

Rothschild, Michael and White, Lawrence J., The University in the Marketplace: Some Insights and Some Puzzles (September 1991). NBER Working Paper No. w3853. Available at SSRN: https://ssrn.com/abstract=473983

Michael Rothschild (Contact Author)

Princeton University ( email )

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National Bureau of Economic Research (NBER) ( email )

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Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

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New York, NY NY 10012
United States

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