An Analysis of Mixed Duopolistic Competition in Higher Education Markets

We analyze imperfect competition in higher education markets. We assume that there are two universities in this market, i.e. one public and one private. They compete with each other in a mixed duopoly framework in order to better satisfy their preferences. While the public institution aims to maximize the human capital, the private aims to profit maximization. Other players in the market are individuals, who through behaving rationally endeavor to maximize their utility, which depends positively on the initial endowment and the acquired human capital, but negatively on the tuition fee. We focus on two types of competition equilibria, i.e. Cournot and Stackelberg. Assuming that the universities compete in students’ ability, we observe that the public university is more selective under a Cournot competition scenario than under a Stackelberg one. In contrast, we see that the private university is similarly selective across the two different situations. Due to preferences' heterogeneity, we find out that the public institution is always more selective than the private one, which essentially accepts all the applications. In addition, we theoretically find out that the social welfare produced under these types of competition is the same. The comparison of outcomes will be useful to know which type of competition produces better results in terms of educational inclusion. Also, it can provide some indications to regulators for a better understanding of imperfect competition in higher education markets. Ultimately, we provide numerical simulations which shed more light on imperfect competition in higher education markets.