Competition, Selectivity and Innovation in the Higher Educational Market

Recent innovations in digital learning and web-based technologies have enable scalability in educational services that has previously not been feasible presenting a potential disruption of traditional higher education markets. This paper explores the impact of these innovations in vertically differentiated market with network externalities. Students differ in their ability to benefit from educational services. We describe how selective and non-selective institutions compete for students through tuition price and admission criteria and consider how free non-credentialed educational services (MOOCs) affect the market equilibrium. Our model also helps explain why selective institutions are frequently also the proprietors of MOOCs.