Too Much Competition in Higher Education? Some Conceptual Remarks on the Excessive-Signaling Hypothesis

Article excerpt


Introduction: The Business of Attracting Students

WITHIN THE ECONOMICS of higher education, there is a small but influential literature that examines the outcomes of competitive processes on markets for higher educational services. In a series of papers, Frank (2001, 2004) and Winston (1999, 2000, 2004), among other things, address the important question of whether the competition among colleges and universities for well-qualified students in some market segments of the U.S. higher education sector has reached an intensity that has to be classified as excessive or "socially wasteful" (Frank 2001: 11) from a welfare-economic perspective. In order to attract students with certain abilities and skills, academic program providers may mount advertising campaigns, publish information brochures on their websites, or offer campus tours. Besides these and other marketing efforts, colleges and universities may invest into the construction and maintenance of buildings and infrastructure, offer merit-based tuition discounts to the most able applicants, or try to recruit academic stars to attract prospective student-consumers' attention. And, last but not least, it can be observed that investments in sports (i.e., sports teams, gymnasiums, stadiums, and the like) are also used as instruments to attract students. (1) In his article "Higher Education: The Ultimate Winner-Take-All Market?," Frank characterizes the current competitive situation on some markets in U.S. higher education as follows:

   Top students ... are an essential ingredient of elite educational
   status, and efforts to attract these students have kept pace with
   efforts to attract star faculty. Universities and colleges up and
   down the academic totem pole are spending far more than ever on
   brochures, videos, mailings, multistate tours by admissions
   officials, and other efforts to woo top students.... Colleges and
   universities are spending more now not just to attract good
   students but also to keep them happy once they arrive....
   Yesterday's double-room occupancy standard in dormitories is giving
   way to apartment-like suites that house one student per bedroom.
   Centralized athletic complexes are giving way to in-dorm training
   facilities that resemble expensive private health clubs. Dining
   halls are being supplanted by facilities modeled after the food
   courts in up-scale shopping malls. Multimillion-dollar.
   state-of-the-art classroom facilities are increasingly part of the
   mix. Universities that fail to offer such facilities often fail in
   their efforts to attract the disproportionate share of
   high-achievement students. (2001: 9)

From the viewpoint of information economics, program providers' advertising, infrastructure investments, recruitment of academic stars, granting of merit-based tuition discounts, acquisition of accreditation labels, or participation in rankings can be interpreted as different forms of "market signaling" in the sense of Spence (1973, 1974). However, according to Frank (2001, 2004) and Winston (1999, 2000, 2004), the competition among colleges and universities for well-qualified students, which--in information-economic terminology--can be considered as a signaling game, generates "socially wasteful" (Frank 2001: 11) outcomes.

The remainder of this article is organized as follows. After presenting the simple welfare-economic reasoning underlying the excessive-signaling hypothesis (Section II), the following sections point out some conceptual problems that arise by the application of such reasoning to competitive processes on markets for higher educational services. Section III tries to interpret what is meant by "socially wasteful" in the literature under investigation. Section IV deals with measurement problems that arise when one tries to identify the private and societal costs and benefits of higher education institutions' signaling activities. …