Becker Friedman Institute

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Market Power and Price Discrimination in the U.S. Market for Higher Education

The main purpose of this paper is to estimate an equilibrium model of private and public school competition that can generate realistic pricing patterns for private universities in the U.S. We show that the parameters of the model are identified and can be estimated using a semi-parametric estimator given data from the NPSAS. We find substantial price discrimination within colleges. We estimate that a $10,000 increase in family income increases tuition at private schools by on average $210 to $510. A one standard deviation increase in ability decreases tuition by approximately $920 to $1,960 depending on the selectivity of the college. Discounts for minority students range between $110 and $5,750.

Authors: 
Dennis Epple, Carnegie Mellon University
Richard Romano, University of Florida
Sinan Sarpça, Koç University
Holger Sieg, University of Pennsylvania
Melanie Zaber, Carnegie Mellon University
Publication Date: 
May, 2017
Publication Status: 
Document Number: 
2017-037
File Description: 
First version, April 2017