Discover more from BIG by Matt Stoller
Ivy League Cartel Sued for Price-Fixing
In a comical trolling of elite America, plaintiff lawyers are suing Yale, MIT, Columbia, Duke, et al for price-fixing. The suit reveals how American universities favor the wealthy and powerful.
Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…
Last April, Sam Haselby and I wrote a piece titled “Break up the Ivy League Cartel,’ offering a history of the elitism of top universities in America. For hundreds of years, these top schools have policed the moral, cultural, and economic boundaries of what forms the American elite, and in the post World War II era, the global elite. They are in many ways a cartel of institutions that share strategy on endowment funds, academic trends, cultural capital and student management.
But it’s not just this informal elite-production model that makes such universities a cartel; they are also an *actual cartel.* Today, a group of class action law firms sued 16 universities for price-fixing against low-income students in the admissions process, which is the key gatekeeping mechanism designed to enhance prestige. The defendants are the wealthiest and most powerful academic institutions in America: Brown, CalTech, the University of Chicago, Columbia, Cornell, Dartmouth, Duke, Emory, Georgetown, MIT, Northwestern, Notre Dame, the University of Pennsylvania, Rice, Vanderbilt, and Yale.
The specific charge is that these universities colluded to price-fix the terms of financial aid. Working together to provide scholarships isn’t necessarily illegal. A lot of universities give out scholarships based on income, under the premise that higher education should be an equalizing force in American society. Some schools even say they make admissions ‘need-blind,’ which means that they don’t take into account ability to pay when determining which students to accept. Instead, the admissions department accepts students based on merit, and then gives accepted students scholarships to make sure they can afford the schooling.
But what specifically makes someone ‘needy’ in a ‘need-blind’ system? The answer to that is an accounting question, so universities work together through an organization called the 568 President’s Group to set the terms for what makes someone needy. Now, if this also sounds like open price-fixing, that’s because it is. But done properly, it’s not necessarily illegal. The reason is universities have been caught before for price-fixing, and part of the settlement of that suit was that they were given an antitrust exemption so they could work together to price scholarships, within certain bounds.
In 1991, the Justice Department investigated 23 prestigious Northeastern universities – including Harvard, Yale, and MIT - for holding an annual meeting in which they “discussed the financial aid applications of 10,000 students who had been accepted to more than one institution in the group,” ultimately colluding to offer the same financial package to these students. The Attorney General called them a “collegiate cartel.” After the settlement, top universities agreed to stop the meetings, but it’s hard to watch the Ivy Leagues without concluding that they are watching each other and mimicking each other carefully.
This settlement was codified when Congress passed the Improving America’s Schools Act of 1994. Universities were allowed to work together to establish standards for who is needy, and how much they would need. However, to qualify for the antitrust exemption, universities had to admit “all students” on a need-blind basis. If they aren’t need-blind for everyone, they can’t work with other universities to price admissions.
Do these universities have a need-blind policy for all students? Most of them say that they do. But as it turns out, admissions officers have a nasty habit of letting in the children of the wealthy and powerful, in return for donations and prestige. "At Dartmouth,” so goes the complaint, “development officers meet with admissions staff to review a list created by the development office. Each year, up to 50 applicants may be considered through this special process, most of whom are admitted, accounting for 4-5% of Dartmouth’s student body." Selling admissions to the powerful is policy at many of these schools.
Sometimes the individual cases are jaw-dropping. For example, the CEO of Sony, Michal Lynton, was trying to get his daughter into college, and the private equity baron Leon Black, who had been on the board of Dartmouth, tried to recruit her to that school, because of the assumption that a large donation would accompany her to campus.
Alas, Black failed. Lynton went to Brown, as did her father’s $1 million donation.
It’s not always about money. At Georgetown, the dean of admissions said, “On the fundraising side, we also have a small number of ‘development potential’ candidates. If Bill Gates wants his kid to come to Georgetown, we’d be more than happy to have him come and talk to us.” But don’t worry, he added, “not all those special cases end up being people who give a lot of money. We have children of Supreme Court justices, senators, and so on apply. We may give extra consideration to them because of the opportunities that may bring.”
So these schools do not accept all students on a need-blind basis. And that creates a problem, because high-end universities restrict their incoming classes, which generates scarcity and prestige. Class size doesn’t increase with increasing population size, it is fixed, with the goal of these universities turning themselves into, as Scott Galloway notes, luxury brands. For instance, in 1940, the acceptance rate at Harvard was eighty-five percent. In 1970, it was twenty percent. For the class of 2025, it was 3.4 percent.
This zero sum situation means that if there are a preset number of slots that go to the wealthy, to alumni, or to the powerful, then that number of slots is not going to people who don’t have the money to attend. If you do favors for the wealthy in the admissions process, then you aren’t a need-blind admission system, and you don’t quality for the antitrust exemption. But the complaint also shows that, far from merely letting in the children of the wealthy while otherwise in all other areas being need-blind, many of these institutions actually discriminate against students who need scholarships. Vanderbilt, Penn, and Columbia don’t seem to be need-blind, with Penn and Vanderbilt officials conceding that who they accept off the waiting list depends in part on who needs financial aid. So they really don’t qualify for any antitrust exemption.
Is there really harm? Yes. The complaint shows that when universities move away from the consensus methodology for calculating the cost of college, the price they charge goes down. So there are financial costs at issue, and the 170,000 alumni who were overcharged when they went to these schools with underpowered financial aid packages deserve compensation.
It’s a very clever suit, legally speaking. No one can reasonably dispute whether universities have colluded, or whether they maintain policies favoring potential donors. There's no need to establish a secret conspiracy, as it’s out in the open. The only real question is whether what universities have done is illegal. It’s a simple question of law, with few disputes on the facts. It’s no surprise that the suit was brought by some of the savvier plaintiff firms (Roche Freedman, Berger Montague, FeganScott, and Gilbert Litigators & Counselors).
It’s also a profoundly embarrassing suit. Every university gets a little profile in the complaint, showing how basically the students are nearly all rich kids, and the endowments of these schools are ridiculous. Here, for instance, is the profile of the University of Pennsylvania.
There’s a broader lesson here. The higher education system in the U.S. is a crown jewel of American society, but universities have also organized their financing models towards flagrant abuses of market power. And that’s not just at the elite level. Economist Marshall Steinbaum turned me on to this piece, showing that more broadly universities use government-mandated information collection to price discriminate in harmful ways against millions of students. Bringing a suit against a practice like this is much harder than showing a clear, open price-fixing conspiracy by elite universities whose behavior looks, when reading the letter of the law, as if it is a violation of Section One of the Sherman Act.
Of course, we know top universities collude to help the powerful. What makes this suit damaging is that it attacks their underlying conception of self. Elite universities want to imagine themselves as meritocratic, though in fact they cater to the wealthy professional class and the billionaires who employ them. In other words, top universities are increasingly tax-free hedge funds with educational arms attached for branding purposes. And they are price-fixers, to boot.
As this suit goes forward, these universities may actually face some measure of justice.
Thanks for reading.
And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.