Recent reforms in the UK have attempted to increase the degree of competition in schooling markets. In this paper we develop a simple model to analyse school behaviour in the type of local quasi-markets created by these reforms. The distinctive features of this model are that both the quantity and quality of educational outcomes are included, with peer group effects explicitly considered as a determinant of the latter. Concentrating on school behaviour, we show that quasi-market reforms can lead to diverging school performance in local markets.
