Consider two prospective Brown students. One, Alice, is unsure of whether or not to attend Brown, while the other, Bob, has been committed to Brown from the start. Alice decides to fly to Providence to visit College Hill and finds while purchasing her airline tickets that there are three different classes of seats from which she can choose. Bob, who decides to forgo a visit due to his certainty in his choice of school, receives a tuition bill later on. He learns that his family is only expected to pay a quarter of full tuition, thanks to the University's financial aid.
Despite their differing levels of enthusiasm for attending Brown, Alice and Bob have something in common. They have both witnessed the phenomenon of price discrimination, in which a vendor charges customers a price that they would likely be willing to pay on an individualized basis. While the price gap between first class and coach that Alice noticed is innocuous and non-controversial, the fairness of the price discrimination that Bob faced in tuition has been debated in numerous recent Herald columns.
Susannah Kroeber '11 notes that tuition increases that are coupled with commensurate financial aid act similarly to progressive taxes ("Raising our Brown taxes," Oct. 7), and uses this to advocate for massive increases in both tuition and financial aid. While Kroeber's observation is true for small tuition hikes, Manas Gautam's '12 retort that a massive progressive tuition increase will do nothing but drive wealthy students to peer institutions ("Are you scared yet?" Oct. 14) is demonstrably valid.
Although Gautam's argument is closer to the mark, the debate thus far covers only half of the story. The role of students as price takers is important, but much more remains to be said for Brown's position as a strategic price setter. Somewhat ironically, the general accusation that the University has become a profit-maximizing corporate machine provides a useful model for exploring this aspect of the tuition issue.
To understand fully why tuition and financial aid are at their current levels, one must consider the game that Brown and other universities play when offering tuition rates to accepted students. After accepting a batch of applicants regardless of their respective levels of income, Brown's goal is, in this model, to maximize its income. Because the marginal cost of educating one additional student is relatively small, Brown is best served by offering each individual student the highest tuition rate that his or her family is willing to pay, which can be estimated from data given in the FAFSA.
If Brown looks only after its profit, then it gives financial aid for the same reason that airlines sell open seats on imminent flights at bargain prices: The choice is not between some amount of revenue and a higher amount of revenue, but rather between some amount of revenue and none at all. Furthermore, if Brown were suddenly unable to price-discriminate in the form of financial aid, standard tuition rates would almost certainly drop, but many would be priced out of a Brown education.
Viewed through these lenses, the drop that Kroeber cites in the number of students with post-graduation debt obligations is likely an artifact of the recession and the consequent slump in students' ability to pay tuition, rather than benevolence on Brown's part. Likewise, because the cost to the student is tied to his or her ability to pay, the disparity in ease of paying that Gautam describes is an unlikely scenario.
However, price discrimination does not work forever; Brown isn't a monopoly, and must therefore set a maximum tuition cost competitive with peer institutions. In line with Gautam's reasoning, a prospective student from a wealthy family may be willing to pay an extra $5,000 per year to go to Brown over, say, Dartmouth, but very few, even among the richest families, would part with $50,000 more per year for what is effectively the same education.
In a competitive market, the ability of a university to raise tuition without hurting revenues is ultimately based on the rate at which tuition rises at peer institutions, much like one airline would suffer from raising its fares unless competing airlines' fares were increasing as well.
While it is intuitive that Brown can benefit from improving efficiency, slashing maximum tuition in order to force such a change, as Dan Davidson '11.5 suggests ("Raising tuition both unrealistic and unwise," Oct. 18), would be disastrous. The path of least resistance in lowering costs generally consists of unsavory actions like layoffs and labor contract changes. Because Brown is fully capable of lowering costs without cutting tuition, shocking it into efficiency would entirely preclude smarter alternatives.
It is apparent that lower-income students generally benefit from price discrimination in tuition. If the University were to throw these strategies to the wind in the name of a vague ideal, it would meet the fate of ATA and Skybus.
Hunter Fast '12 is a frequent beneficiary of Southwest's "Wanna Get Away" fare pricing.
