A Model Of College Tuition Maximization

Abstract

This paper develops a series of models for optimal tuition pricing for private colleges and universities.  The university is assumed to be a profit maximizing, price discriminating monopolist.  The enrollment decision of student’s is stochastic in nature.  The university offers an effective tuition rate, comprised of stipulated tuition less financial aid, to each student based on the demographic characteristics of the student.  Initially, the applicant poll is assumed to be homogeneous.  Subsequently, the quality of the applicant pool is allowed to vary and the university’s tuition maximization problem is subject to quality and capacity constraints.  Lastly, we perform a simulation that allows an exploration of the risks associated with the university’s tuition, quality and capacity decisions.