The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

CASE 7
Antitrust and Higher Education:
MIT Financial Aid (1993)

Gustavo E. Bamberger and Dennis W. Carlton


INTRODUCTION

In 1991, the U.S. Department of Justice's Antitrust Division (“the Government”) sued the Massachusetts Institute of Technology (“MIT”) and the eight colleges and universities in the “Ivy League”—Brown University, Columbia University, Cornell University, Dartmouth College, Harvard College, Princeton University, the University of Pennsylvania, and Yale University. According to the Government, the nine schools violated Section 1 of the Sherman Act by engaging in a conspiracy to restrain price competition for students receiving financial aid. The Government claimed that the schools conspired on financial aid policies in an effort to reduce aid and thereby raise their revenues.

The schools responded that the Sherman Act did not apply to them because they are not-for-profit institutions. Furthermore, they justified their cooperative behavior by explaining that it enabled them to concentrate aid only on those in need and thereby helped the schools to achieve their socially desirable goals of “need-blind” admission coupled with financial aid to all needy admittees. Without collective action, the schools argued, there would be less financial aid available to needy students, with a resulting decrease in the number of lower-income students attending those schools.

Dennis Carlton testified as an expert witness on behalf of MIT. Gustavo Bamberger assisted in the
development of the economic analysis underlying Carlton's testimony. This chapter is based in part
on Carlton et al. (1995). We thank Greg Pelnar for his assistance and John Kwoka, William Lynk,
and Larry White for helpful comments.

-188-

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