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Home / Carpe Diem / Q: With excess demand and significant pricing power, why don’t elite colleges expand? – Publications – AEI

Q: With excess demand and significant pricing power, why don’t elite colleges expand? – Publications – AEI

Summary:
AEI Q: With excess demand and significant pricing power, why don’t elite colleges expand? Steve Hayward answers that question on the Powerline blog: Consider it this way: Suppose you had a business where your product was in huge demand, and you had such pricing power that you could charge a lot more than you do already. What would you do? You’d expand capacity of course. Why is it that none of our elite private colleges and universities consider expanding its student body and faculty? Harvard, Yale, Princeton—even USC—have ample endowment resources to acquire land, erect buildings, and hire new faculty, all without compromising their admissions standards at all. The Ivy League schools each year have to turn away boatloads of applicants with stratospheric test scores and high grade point

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AEI
Q: With excess demand and significant pricing power, why don’t elite colleges expand?

Steve Hayward answers that question on the Powerline blog:

Consider it this way: Suppose you had a business where your product was in huge demand, and you had such pricing power that you could charge a lot more than you do already. What would you do? You’d expand capacity of course. Why is it that none of our elite private colleges and universities consider expanding its student body and faculty? Harvard, Yale, Princeton—even USC—have ample endowment resources to acquire land, erect buildings, and hire new faculty, all without compromising their admissions standards at all. The Ivy League schools each year have to turn away boatloads of applicants with stratospheric test scores and high grade point averages.

There are several reasons why not one elite school considers doing this. First, it would erode (though not by very much) the status symbol of exclusivity that comes with what is now the ultimate luxury good. Second, it might wreak havoc with the “diversity” game of affirmative action admissions. While there are lots of white and Asian kids with test scores sufficient to gain entrance to Harvard and Yale, the pool of black and Hispanic high school students, even with the lower test score thresholds, is likely not large enough to maintain the current proportion of minority enrollment that is essential for white Harvard liberals to feel good about themselves.

MP: Both of Steve’s answers seem convincing, especially the second one.

Q: With excess demand and significant pricing power, why don’t elite colleges expand?
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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