Colleges in Collusion, The New Republic 19 (October 16, 1989).
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A group of sellers - say, cement manufacturers - gets together to set the price for
a ton of cement. Or the presidents of the ten largest cement manufacturers meet once or
twice a year to set the size of discounts they will offer for their product. If their conduct
is discovered, the cement companies are in trouble. They face civil suits for triple
damages and even could go to jail for price-fixing. And the prosecution would hardly
merit a mention in the back of the business section. The cement manufacturers' conduct
represents a classic violation of federal antitrust law.
It is a bit troubling, then, that the Justice Department's recently revealed
investigation of agreements among top colleges to fix financial aid awards - and
possibly to set tuition charges - has been received with so much surprise and some
criticism. Colleges have no magical immunity from federal antitrust laws. The Justice
Department's investigation, which seeks to subject university presidents to the same
rules that govern presidents of cement manufacturers, should be applauded.
The Justice Department is investigating whether a group of Ivy League and elite
liberal arts colleges colluded to set both tuition and financial aid awards. The
institutions have denied agreements to set tuition. However, some of them freely admit
to meeting in committees to set uniform scholarship awards for college applicants who
have been accepted by more than one school in the group. Because of the agreements,
an applicant would receive the same financial aid offer from different schools.
Tuition and financial aid agreements would eliminate price competition among
schools and accordingly run afoul of the Sherman Act's per se prohibition of horizontal
price-fixing. An agreement to set the amount of financial aid is economically no different
from a horizontal agreement among manufacturers to fix uniform discounts for their
products. A scholarship is, in effect, a discount from the basic tuition price. The price of
a college education - at tuitions that commonly run more than $15,000 a year at Ivy
League schools - is a major consumer purchase that easily dwarfs the purchase of a
new automobile. Collusion to limit the amount of discounts on college tuition injures the
student/consumers just as much as collusion to limit sticker price discounts for new cars
would injure driver/consumers.
The collusion to fix scholarship awards, if proved, constitutes a classic form of
price discrimination: selling the same good (in this case, a college education) at
different prices (varying financial aid packages). The goal of price discrimination is to
separate consumers into groups that value a product differently and then to charge
different prices to the different groups.
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