Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

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

May 2017
Dennis Epple, Richard Romano, Sinan Sarpça, Holger Sieg, Melanie Zaber

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.