Is Higher Education Becoming a Commodity?

Abstract

This paper develops a statistical model over the 1992 to 2002 period to measure the forces that lead colleges and universities to price discriminate. Identifying those forces makes it possible to determine the kinds of schools that are better or less able to effectively price discriminate. The empirical findings strongly suggest that schools with lower student selectivity need to give back a high proportion of tuition increases to students in the form of discounts (financial aid) than do higher selectivity schools. This result is consistent with economic theory that suggests price discrimination is more effective when demand is inelastic.