Competition Among Universities and the Emergence of the Elite Institution

Abstract

We consider an environment where two education institutions com-pete by selecting the proportion of their funding devoted to teaching and research and the criteria for admission for their students, and where students choose whether and where to attend university. We study the relationship between the cost incurred by students for at-tending a university located away from their home town and the equi-librium con…guration that emerges in the game played by the uni-versities. Symmetric equilibria, where universities choose the same admission standard, only exist when the mobility cost is high; when the mobility cost is very low, there is no pure strategy equilibrium. For intermediate values of the mobility cost, only asymmetric equilib-ria may exist; the …nal section of the paper provides an example where asymmetric equilibria do indeed exist for a plausible and robust set of parameters.