A Racket by Any Other Name
Or how elite colleges collude to fix the number of available seats
Annually, the number of applicants to elite colleges surges and their acceptance rates crash. This year, 61,220 high school students applied to be enrolled at Harvard, and Harvard accepted a miserly 3.19%. Harvard clearly doesn’t care that it misses out on enrolling plenty of over-qualified students each year. Instead, Harvard’s total enrollment has been rigidly fixed for decades. Unfortunately, Harvard isn’t alone.
Universally, the elite colleges have frozen their class sizes. As Alia Wong quantifies in The Atlantic, “In the Ivy League…the increase in application numbers parallels the rising number of high-school graduates, which grew from 3.1 million in 2009 to an estimated 3.6 million in 2016. Yet the enrollment at Yale and other Ivies has remained virtually stagnant over the same period: In the 2005–06 school year, the university enrolled 1,321 undergrads, and in 2016–17, that number jumped only marginally to 1,367 students.”
Why don’t the elite colleges expand enrollment? After all, far more students can handle the work at these schools than are admitted. Annually, elite colleges reject tens of thousands of students who are capable of meeting the academic rigor. As Peter Blair and Kent Smetters conclude in a recent study, “If elite colleges were simply maintaining student quality, their total enrollments would have doubled or tripled since just 1990.” It’s not that the coursework at elite colleges has gotten more difficult since 1990 either; rather, the common quip on Harvard’s campus is that the hardest thing about Harvard is getting in.
Much as elite colleges might pretend, its not that physical constraints are holding them back from expanding enrollment either. If elite colleges don’t have enough space to expand within their current campuses, why don’t they buy more land nearby? Instead of NYU building a campus in Shanghai, why doesn’t it expand in SoHo? If land doesn’t exist nearby, why not build more colony campuses. If Georgetown can expand to Doha, why not Detroit? Why aren’t elite colleges deploying the billions stuffed in their massive endowments to add more seats?
Reframing frozen class sizes from a business perspective, we have to ask a simple question. What kind of business doesn’t want more customers? Isn’t the first objective of any startup to scale and to scale quickly? If I went to Baskin-Robbins and told them they should sell less ice cream, they would laugh in my face. Yet, if I went to Brown and told them they should accept less students, this would be plausible advice. Why is Baskin so different from Brown?
The reason this advice is much more plausible for Brown is because Brown operates in a different market structure than Baskin-Robbins. If Baskin-Robbins tried to sell less ice cream, hungry consumers would go to a different ice cream shop. Maybe they would walk to Ben & Jerry’s down the street. Or maybe they would drive to the Haagen-Dazs a bit further. Ice cream customers have a lot of options. But if Brown reduced enrollment, where would those unfairly rejected students go instead? They can’t go to Harvard. It’s even harder to get in there. Likewise, they can’t go to Stanford, they probably won’t get in. Maybe, a few of them could get into Duke, but it’s not a sure bet for everyone. Most likely, many students would have to settle for a less prestigious college education. So what’s the difference between Baskin-Robbins’ competitors and Brown’s? Baskin-Robbins’ competitors want more business. Brown’s competitors don’t. Brown is in an anti-competitive market.
In an actually competitive system, not only would Brown’s competitors try to enroll all the talented students that Brown unfairly rejected, but also they would try to steal away all the students that Brown actually did accept. In such a competitive market, elite colleges would constantly be trying to get larger, and they would all jockey to increase enrollment substantially. If one of their campuses reached capacity, they would be trying to build a new one somewhere else in the world. Acceptance rates would be far higher. Quality of instruction would be far better. Prices would be much lower. This is obviously not what is happening in the elite college market. In fact, we’re living through the exact opposite.
What are the elite colleges doing? Why are they behaving so anti-competitively? The answer lies in the distorting cartel structure which drives the decisions made by elite colleges. This cartel structure is the hub-and-spoke, where the U.S. News Ranking plays the role of hub and the elite colleges play the spokes. This hub-and-spoke cartel has turned a potentially competitive market into an absurdly anti-competitive one. It has deprived hundreds of thousands of an elite education, and it has raised prices for those lucky enough to get one. To see how this cartel works, let’s start with a diagram.
The Hub-and-Spoke Structure of The College Cartel
It is intellectually useful to think of the hub-and-spoke structure of the college cartel as an octopus. The U.S. News & World Report is the head of the octopus. The various elite colleges are the tentacles. In this metaphor, the head of the octopus coordinates the actions of all of the tentacles. If any one tentacle goes rogue, the head punishes that tentacle to reassert control.
This hub-and-spoke structure only works because the elite colleges have a hub in common. This hub is their upstream supplier: U.S. News & World Report. It might seem weird to think of U.S. News & World Report as a supplier for elite colleges. But students go to college to acquire a signal of ability. The strength of the signal a student inherits from his college is directly related to that college’s prestige and relative position compared to other colleges. Ultimately, it is the U.S. News & World Report college ranking which provides each college with that positional ranking and corresponding level of prestige. Thus, U.S. News & World Report provides a key input to all elite colleges.
In practice, the U.S. News & World Report coordinates supply restrictions through its ranking formula. This is because the U.S. News & World Report rankings openly reward low enrollment. As Alia Wong explains in The Atlantic, “Why are elite colleges so hesitant to add students? Part of the reason is the pursuit of selectivity, tied to the quest to top the U.S. News & World Report rankings,” and while U.S. News no longer directly factors in acceptance rate, it factors in a whole host of stealthier proxy metrics to incentivize rejectivity and low enrollment.
Crucially, if any elite college acts against what the U.S. News & World Report ranking formula encourages, that elite college will accrue less prestige as it will be ranked lower. As a result, in the minds of students, donors, and alumni, that college will be perceived as a deteriorating product. Since no college wants to be perceived as inferior, there is little incentive in deviating from what the U.S. News & World Report encourages. Describing the enforcement power of the U.S. News & World Report ranking system, Carnevale, Schmidt, and Strohl explain in their book, The Merit Myth, “The power that U.S. News asserted over colleges was immense. Those that dropped in the rankings could experience steep declines in applications, find it harder to recruit faculty or solicit donations, and even suffer a downgrading of their bond rating that forced them to pay higher interest rates in borrowing.” The U.S. News & World Report rankings are powerful as a coordinating tool because they explicitly outline what each college ought to do.
What does the U.S. News & World Report receive in exchange for creating the rules through which prestige is allocated and artificial scarcity is maintained? It receives credibility and access to unique data. As the creator of the U.S. News & World Report’s college ranking, Bob Morse, said to Time, “I think our rankings make the most sense to the public because our rankings are the most transparent. Our rankings have the methodology that makes the most sense. When the public sees that the schools are wanting to do better in our rankings, they say, well if the schools want to improve in these rankings, they must be worth looking at. So, in essence, the colleges themselves have been a key factor in giving us the credibility.”
The U.S. News & World Report produces the only ranking which receives access to unique data from college administrators through responses to surveys. Colleges further promote the U.S. News & World Report by putting out press releases when they do well in the ranking. All these small signals of legitimacy add up to a massive advantage for the U.S. News & World Report. Students feel that the U.S. News & World Report knows something that they don’t. They feel that the U.S. News & World Report has insider knowledge. That strong credibility is why the U.S. News & World Report absolutely dominates the market for college rankings. U.S. News & World Report garners overwhelmingly more traffic than all the other college rankings combined.
For the hub-and-spoke structure of this cartel to work, the hub has to maintain a dominant position in its market. Otherwise, why would elite colleges be afraid of dropping in the U.S. News & World Report’s ranking? If there were other ways in which the public formed its impressions of relative prestige, then colleges would focus on those mechanisms instead of the U.S. News & World Report’s ranking. However, because of the credibility that elite schools lend to U.S. News & World Report, the ranking service is able to maintain overwhelming market share. As a result, U.S. News & World Report is able to coordinate its spokes in turn.
This corrupt bargain between the U.S. News and the elite colleges is why there is such a scarcity of seats at elite colleges. System-wide scarcity has produced a mismatch between flat supply and growing demand. This scarcity has brought elite colleges a tremendous amount of power.
Some students are dealing with this scarcity of seats at elite colleges better than others. For example, at Downtown Magnets High School in LA the seniors recently held a “rejection party”. As the Los Angeles Times reports, “Only seniors with letters of denial could attend the rejection party — and they must ritually destroy the bad news in a shredder. The student with the most rejections would be honored with a paper crown and $50 bookstore gift card for having the gumption to try so many times. And everyone would get ice cream sundaes.” When you put it that way, getting rejected almost sounds fun! But if Shakespeare was correct in saying that a rose by any other name is just as sweet, then surely a racket by any other name is just as bitter.
Its not just vanity which makes elite colleges important. Instead a study by Stacy Dale and Alan Krueger found that elite colleges uniquely help boost economic outcomes for people from economically disadvantaged backgrounds, racial minorities, and women. This is because prestigious degrees can overpower other characteristics which a prejudiced society might hold against such people. Further, the networks that disadvantaged students are uniquely able to tap into at elite colleges increase their level of social capital forever. To understand the economic rocketry that elite colleges can uniquely bring, merely imagine how our polity would have treated Barack Obama if he wasn’t a Harvard Law graduate but a Hofstra Law graduate instead. Getting the next Barack Obama(s) into elite schools is important, both to them and to our society.
Therefore, the scarcity of seats at elite colleges has to be reckoned with, and we can start by understanding the cartel which produces such artificial scarcity. In the writing to come, I’ll explain how we break this cartel up and swing open the doors at elite colleges to every gifted student capable enough to handle the rigor. It’s time. In fact, it’s beyond time. Let’s bust open the college cartel.
The Seat Hoarding College Cartel