How the Changing Market Structure of U.S. Higher Education Explains College Tuition
NBER Working Paper No. 6323
This paper presents theoretical and empirical evidence demonstrating the ways in which" the changing market structure of American higher education from 1940 to the present affected" college prices and college quality. Over this period, the market for baccalaureate education" became significantly more competitive, as it was transformed from a collection of local autarkies" to a nationally integrated market. I demonstrate that the results of increased competition were" what industrial organization models (with product differentiation and students being both" consumers of and inputs into higher education) would predict: higher average college quality and" tuitions, greater between-college variation in tuition, greater between-college variation in student" quality, less within-college variation in student quality, higher average subsidies to students greater between-college variation in subsidies. Changing market structure can explain real" tuition increases of approximately 50 percent for selective private colleges. Panel data from" 1940 to 1991 on 1121 baccalaureate-granting colleges are employed, including data on students'" home residences.