Spatial Competition and the Price of College

Relatively little work has examined whether universities compete directly in either list or net tuition. This paper is the first to examine competition among universities, doing so through the introduction of geographic proximity into a model of tuition determination. We also contribute to the spatial econometric literature by relaxing the constraint in the standard spatial model that the strength of the spatial relationship be common across all observations. Exploiting detailed data for a cross-section of private US universities, the results of standard spatial models applied to tuition setting suggest that both list and net tuition are positively related to the proximity of competitors. Thus, the paper provides the first formal evidence that universities compete directly on price, and that the market for students depends on the proximity of competitors. However, the differential spatial-lag models suggest imposing a common spatial effect across all classes of institutions is overly restrictive insofar as spatial dependence depends on both geographic proximity and institutional quality