The paper conducted by Winston and Zimmermann (2000) looks into the effects that price competition has on universities, and they come to the conclusion that it is proving to be an extremely damaging issue for higher education. The authors use analysis to highlight the many problems associated with price competition, which they back up with similar findings from graduate markets, and from profitable organizations. They use the principles of microeconomics to relate to the subject of higher education, and they try to find a conclusive understanding of the consequences that price competition on undergraduate courses would have.
In research conducted towards the graduate studies market, Winston and Zimmermann find that recently, there has been a trend leading towards something known as "negative tuition", which promotes student subsidies over regular tuition fees, due to the fact that competition for student satisfaction is increasing (page 3). By exploring profitable markets, and analogues for competition, they note that higher education is very distinct, as donations and other sources of revenue help to pay for costs, in turn allowing students to gain subsidies. Competition between higher institutions is having the effect of forcing larger and larger subsidies that would affect money that could be used elsewhere (page 4).
By this stage, the authors go on to state that the better ranking institutions will naturally offer the largest subsidies to students. This comes as no surprise since the highest ranked institutions receive the greatest amount of charity. The problem is that this competition has the effect of steering the brightest and most able students to the higher ranking colleges, thanks to their subsidies, while colleges with less money would need to decrease tuition fees to stand a chance of competing, decreasing their money and making them worse off.
The notion that students rush to the institutions with the best subsidies is entirely reasonable, and especially true in the face of modern economic stress. However the authors so not give adequate explanation as to why the savings made in this way are important, and what the uses of such savings are. Are they used to fund innovation and new techniques, or for increased research? Before we have a concrete understanding of the results of savings for colleges, and the desire to maintain this source of revenue, the notion that institutions should not modify their policies for saving appears false.
There are other questionable things that are concluded in this paper. The authors make a conclusion that price competition is likely to mean a larger amount of talented students for institutions with high amounts of resources, and adding that this so called "social desirability" is something which raises questions (page 8). While they make this statement, they do little to asses this conclusion with the positives and negatives of the price competition that would make for a justifiable conclusion. Currently, getting the best higher education is not simply the result of academic talent, but to the money that the student has, and whether or not his or her parents are able to afford it. So talented students that are poor are less likely to get the best institutions. Educational resources are often a moot point anyway, with talented students from middle-running universities being overtaken from lesser students who have the money to go to Ivy League.
One factor that is not addressed in the paper is the earning of students after education. It cannot be denied that what the students' earn after graduation is a big reason for why many universities would want to increase the quality of their applicants, by lowering prices, since the most talented inevitably earn more, and often donate to their institutions.
Therefore, it is my conclusion that Zimmermann and Winston give some well thought out and interesting insights, on the subject of university and college price competition and the impacts that such competition may have. However, for a successful and complete evaluation to be made, they would need to stop looking at the educational institutional system as an isolated one, and start taking into account the things of larger scope, because they are very significant.
Winston, G.C., & Zimmermann D.J. (2000, July). Where Is Aggressive Price Competition Taking Higher Education?