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Non-Profits and Price-Fixing: The Case of the Ivy League

 
Paper:ewp-io/9808001
From:    
Date: Sun, 2 Aug 1998 09:22:53 -0500

Abstract:
A number of private colleges and universities have chosen not to compete for students by offering merit-based financial aid. In addition, until 1990 many of these schools jointly calculated a student's financial need. I theoretically and empirically analyze the effects of different financial aid policies on prices paid by students and tuition revenues earned by schools. I model university decision-makers as choosing prices for needy and non-needy students and the quality of the school to maximize a utility function subject to a non-profit constraint. While schools are altruistic in the sense that they derive utility by admitting (qualified) needy students, utility increases with a reduction in price competition for these students. The effect of jointly determining the price charged to needy students is to increase tuition and the average price paid by students receiving aid, while the effect on average tuition revenue earned per student is ambiguous. Using data from the Department of Education and from Peterson's Guides, I find that the adoption of a need-only policy significantly increases the price paid by non-needy students (tuition). The evidence also suggests that students who would qualify for merit-based aid pay higher prices at need-only schools. In addition, a need-only policy substantially increases earnings from tuition; schools that adopt a need-only policy earn an additional $1,400 per student annually. Explicitly coordinating on financial aid awards achieves broadly the same effects as does tacit collusion.

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then xxx.lanl.gov) and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

In 2005, Arts and Sciences commandeered the computing services that I had provided to the Department of Economics since 1987. Some might say that the department was sold out, others would (erroneously) claim that centralization is efficient, and still others would claim that I have few marketing skills.

I was told that I could keep operating EconWPA (as well as many other services including rfe.wustl.edu, barnett.wustl.edu, and three RePEc servers) but I would receive no support (hardware, software, or anthing else) and (as had been the case) no compensation. At that point, given the apparent low valuation of my activities by the department, and university, it made no sense for me to continue operating EconWPA or other services.

Thanks to all who have supported EconWPA in the past.

A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006