From: sethb@fid.morgan.com (Seth Breidbart)
Subject: Re: the MIT anti-trust case
Organization: my opinions only
Date: Wed, 30 Sep 1992 23:54:31 GMT

In article <1992Sep27.190349.9742@midway.uchicago.edu> thf2@midway.uchicago.edu writes:
>In article <1992Sep27.183939.25858@fid.morgan.com> sethb@fid.morgan.com (Seth Breidbart) writes:
>>Despite anything that may have been agreed to, Harvard has a monopoly
>>on Harvard degrees, and will continue to do so.  Likewise the rest of
>>the Overlap group.
>
>And General Motors has a monopoly on Cadillacs.  And so on.
>
>However, if Ford, GM, and Chrysler got together and agreed to
>keep the price of cars several thousand dollars higher than it
>would be otherwise, I suspect many people would be upset.

Ford, GM, and Chrysler together manufacture a very high percentage of
the cars sold in the US.  The overlap group together provide a very
low percentage of the college educations in the US.

>Yes, a Harvard degree is unique.  There are many close substitutes,
>though--the problem was is that the majority of these substitutes
>formed a cartel that allowed them to overcharge students.  Now
>students will have a choice.  Imagine that.

Students always had a choice (I was offered $0 by a number of the
overlap group); now, they'll be given financial incentives to decide a
certain way.  It isn't clear that this is better (given that the total
amount of aid, and hence the average amount, will not change).

>>I also conjecture that they will continue to raise fees at whatever
>>rate they want, which will probably continue to exceed inflation.
>
>They'll have a more difficult time with it though, if Yale and Penn
>and Princeton act to keep costs under control.  But, as standard
>economic theory predicts, a price-setter has no incentive to keep
>costs under control.  Harvard can try to maintain their ways; as
>soon as a couple of colleges break rank, however, Harvard's going to
>have to figure out a way to get themselves back in line before they
>price themselves out of the market.  

I strongly disagree.  I'd bet that if Princeton turned free (say, some
billionaire offered to pay everybody's tuition for 4 years), Harvard's
price would stay the same.

>The Overlap Group was a way to keep its members from breaking ranks.

No, it controlled the amount of aid offered, not the tuition charged.

>>Furthermore, I doubt that the consent agreement will change the total
>>amount of financial aid that any school grants; rather, it will
>>slightly change the distribution, in a semi-random manner.  
>
>There's financial aid, and there's financial aid.  Much of the financial
>aid granted by the Overlap Group was faux financial aid that reduced
>the monopoly price to a level closer to a competitive level.  
>
>If a monopolist was charging $10 for a widget that would be priced $5 under
>competition, it's hardly generous of it to sell it for $7 and call the $3
>"financial aid."

It's the same situation now, only the exact amounts will change.

>Furthermore you assume, that colleges will continue to let costs
>run out of hand--now that they no longer have a cartel to protect themselves,
>it's only a matter of time before a few break ranks to start pricing
>themselves reasonably.  And when that happens, the rest will have to
>do so also, or find that they've priced themselves out of the market.

Want to bet?

Seth		sethb@fid.morgan.com
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