As a recent university graduate, I’m now ready to air my views on what I’ve seen and experienced within various institutions of higher education. First on my list: university monopolies.
A quick primer for those of you unfamiliar with the topic (actually, your days playing Monopoly might be more relevant than you think) or who are a bit rusty:
Characteristics of a monopoly market
- One seller. If instead there are only few sellers (but more than one), then it is an oligopoly.
- Pricing power lies with the monopolist. They set whatever price they choose, and customers must either pay that price or do without.
- Rent-generation. Monopolists earn abnormal profit – unless, that is, this is whittled away by a fixed cost (see below).
- Inefficiency. Further to the above – the monopolist’s profit is surplus taken from consumers. Not all of the surplus, except with some effective price discrimination, but certainly consumers are left worse off than they would have been with a more competitive market. And more importantly, the loss to consumers exceeds the gain to the monopolist – thus the inefficiency.
And now, what exactly am I talking about in the context of universities? Here are a few of the areas in which unis have a monopoly:
- Courses taken towards your qualification. Although there’s always the prospect of obtaining credit for subjects completed at other institutions (e.g. on exchange), most universities have some minimum amount of courses that must be completed ‘in house’. Certainly that makes sense – it would be odd if someone could obtain a degree from Harvard having only completed their terminal semester there – but it nonetheless gives the university a monopoly over at least the majority of your education.
- Textbooks. Again, not a perfect example, particularly given the efficient secondary markets that arise once a textbook has been used for multiple semesters, but certainly one that will resonate with students. For many courses, to decline buying the prescribed textbook is to risk failure, so the incredibly high prices become an unfortunate but inevitable aspect of student life.
- Participation in your graduation ceremony.
- Photos of your graduation ceremony.
The last two items on my (certainly incomplete) list prompted me to write this post.
To attend my university graduation, graduands were required to fork out $100. Now, I understand that there are costs associated with graduation – staff labour and gown are the two that spring to mind – but $100 seems far too high to accurately reflect the marginal cost of including me in the ceremony. I have a pretty large melon and as such it took about an extra minute to fit me with a mortarboard, so I’m willing to add that to the labour cost, but even if the stench from my ego was so bad that they had to have the gown specially dry cleaned after I’d worn it, I still can’t come to a figure higher than perhaps $30-40 for my marginal cost. Hence I’m left with the conclusion that the uni is using its monopoly power over graduation attendance to extract rents.
As to the photos: although graduands were free to take their own photos, there was a photographer on stage during the ceremony whose company also had a vast labyrinth set up just outside the graduation hall where smiling students and loaded parents could purchase photo packs. But the cost – wowee, and ouch!
To be fair, they offered a very nice and very professional service, with photographers who obviously knew what they were doing, but boy did you pay for the privilege. To make it matters worse, the photographers presence on the stage lent the whole operation the air of being promoted by the university. Behavioural economics tells us that if this is the case, people will typically adopt the option implicitly suggested by the organisation, rather than taking their own photos.
Quick word on price – a comparison of the prices charged by the photography company with those asked by Officeworks for the same service (in terms of the finished product, at least) dispels any illusions that cost is the issue here. At least, not unless the photographers are being paid extraordinarily good wages.
So this company must be making a motza out of fresh graduates. But the uni isn’t stupid, and can pick and choose which company gets the spoils. So my bet is that the university is charging the company a fairly hefty fee for allowing them to cash in on the monopoly action.
But why is this all so bad?
That’s the million-dollar question, innit? My objections are two-fold.
- Morally: I’m just not so keen on squeezing students, particularly in a world in which a university education is fast becoming indispensable for earning a decent living. Even if it ends up being the students’ parents who are squeezed (which is pretty likely in the case of graduation photos), it still seems like an organisation taking advantage of an emotionally-charged situation (who can think about cost when your little baby has just graduated?!).
- Economically: as mentioned above, monopolies are inefficient. I, for example, would have liked some professionally-done photos to remember my graduation, but I was far from willing to pay what was asked. (I was even unwilling to ask my parents to pay, that’s how wildly out of the ballpark I thought they were!)
So to alleviate one source of students’ suffering and to decrease economic inefficiency in the world, universities should relinquish some of their monopoly power. Lowering the price of graduation to better reflect the cost and allowing more competition in the graduation photos market would be two good starting points.