Chapter 66, Problem 1FRQ

a)

To determine

To state: A factor of the market for higher education that invites tacit collusion.

Explanation of Solution

One reason for the market for higher education that attracts tacit collusion is that the universities propose a small number of products i.e., a small number of programs with a smaller number of tuition levels.

So, this attracts/ calls for tacit collusion. They can also have the same views of the tuition level that families can pay for.

Tacit collusion is when there is no formal agreement between the competitors to collude in order to raise their profits and revenue.

Economics Concept Introduction

Introduction:

Collusion is generally regarded as conspiracies or combinations or agreements among the sellers to fix or raise prices and to reduce output in order to increase profits.

b)

To determine

To state: A factor of the market for higher education that works against tacit collusion.

Explanation of Solution

The aspect of the market for higher education that works contrary to tacit collusion includes large number of universities and the negotiating power of the superior applicants.

Economics Concept Introduction

Introduction:

Collusion is generally regarded as conspiracies or combinations or agreements among the sellers to fix or raise prices and to reduce output in order to increase profits.

c)

To determine

To state: The way with which the university could engage in illegal collusion.

Explanation of Solution

How the universities could engage in illegal collusion are:

1. By conducting meetings to create the same/uniform tuition rates.<
2. dividing up aspirants so that each is accepted by a limited number of schools( to evade competition )
3. Distribute info on scholarship assistance so that applicants will get the same offers from competing schools.

Economics Concept Introduction

Introduction:

Collusion is generally regarded as conspiracies or combinations or agreements among the sellers to fix or raise prices and to reduce output in order to increase profits.

d)

To determine

To state: The ways with which the universities engage in product differentiation.

Explanation of Solution

The ways with which the universities engage in product differentiation are academic standards, overseas programs, location, athletic programs, graduation requirements, faculty, and class size among other areas.

Economics Concept Introduction

Introduction:

Collusion is generally regarded as conspiracies or combinations or agreements among the sellers to fix or raise prices and to reduce output in order to increase profits.

e)

To determine

To explain: How price leadership might work in a university setup.

Explanation of Solution

Price leadership can be achieved in the case of a school, perhaps a prestigious and large university, declaring its tuition before time i.e., early, and then other schools based their tuition on that declaration.

Economics Concept Introduction

Introduction:

Collusion is generally regarded as conspiracies or combinations or agreements among the sellers to fix or raise prices and to reduce output in order to increase profits.

f)

To determine

To state: The type of non-price competition universities are engaged in.

Explanation of Solution

The type of non-price competition universities are engaged in are:

1. Bigger dorm rooms
2. Offering better food
3. Plush students center
4. More accomplished faculty members
5. Many more similar amenities.

Economics Concept Introduction

Introduction:

Collusion is generally regarded as conspiracies or combinations or agreements among the sellers to fix or raise prices and to reduce output in order to increase profits.