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Antitrust problems in ending early admission?

Over at Truth on the Market, Thom Lambert (co-blogger of my Antitrust and Contracts II professor, Dr. Joshua Wright), notes incorrectly suggests that Williams is involved in discussions on the future of early admission that give off the unavoidable whiff of forbiddencollusive behavior of the sort that elite higher educational entities have been known.

(UPDATE: 10:10 pm)
After looking into the story more closely, it appears that I based my conclusions on some erroneous data, although I remain as firmly opposed to eliminating ED as humanly possible. The meeting discussed in the article linked from TOTM was in June, so I apologize for and withdraw any implication that this was in response to Harvard’s costless PR maneuver. Based on that, I incorrectly concluded that the presidents were meeting “to discuss, among other things, collectively eliminating their early admission programs and reducing merit-based aid.” (as TOTM described the NYT’s description of the June meeting) in response to Harvard.

Obviously, if that WERE the scenario (which it is not), the analysis below the cut would be true (if not necesarily fair or charitable), and I suspect that any such descision-making would not happen in the future.

So, again, my apologies, and I’ll leave my commentary below the cut for posterity rather than eliminate evidence of my errors.

So not only is even considering ending early decision a suicidal idea for Williams, but by publicly meeting with other liberal arts schools to “discuss it”, a court could easily presume that a joint decision will be made if there’s parallel behavior afterwards, thus rendering the conduct forbidden under S.1 of the Sherman Act, and potentially opening Williams up to some serious liability for an Antitrust violation. Gotta love treble damages!

I don’t know who the school’s chief counsel is, but if that counsel didn’t warn Morty about the MASSIVE potential downside of participating in that meeting given the history of collusion in elite college admissions, then Morty needs consider some supplementary legal advice.

The Administration is so incredibly risk averse over alcohol at homecoming (to the point destroy homecoming as we knew it) and drunk or sick students (by getting rid of the health center as we knew it, thereby drastically inconveniencing students who are sick yet not in need of expensive and disruptive hospitalization)… which is why it’s all the more mystifying and stupid that they’re just opening the door to a level of liability that could take a non-trivial bite of the endowment.

Penny wise, pound brain-dead.

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#1 Comment By AC 199X On September 20, 2006 @ 6:53 pm

I’m no antitrust buff, but isn’t it a little premature calling this a violation of the Sherman Act? Couldn’t a respectable argument forward the idea that elimination of binding early decision would be beneficial to students and increase competition, since desireable students would not be locked in to financial aid offers and could weigh offers from different schools and maybe even use different offers to negotiate?

The conversations that may or may not be occuring are different from the old ivy league collusive behavior by orders of magnitude. Then, the ivies were basicially agreeing on which school students should end up. Today, I think these discussions are being generated because there is a sense that the desire to apply ED has negative consequences. After all ED essentially lowers the total number of applications out there…how is that more competitive than if there was no ED?

Even if Harvard and Princeton are colluding, do they really have the share of the “market” to make this an antitrust violation? I mean don’t we all know people that didn’t go either H or P that turned out okay ;-)

#2 Comment By Loweeel On September 20, 2006 @ 8:10 pm

I didn’t mean to state that it WAS forbidden, just that it could be later determined to be wrongful conduct especially in the light of past practices. Similarly, I don’t think the college WAS doing anything wrong with the way it handled alcohol at homecoming or running the health center under the old policy, but it decided that for both, the liability risks were too high. In this case, the liability is at least 3 orders of magnitude higher, yet they’re not being nearly as risk-averse.

Regarding the “beneficial to students” argument, it’s pretty clear that antitrust law doesn’t countenance a “consumers are stupid and don’t consider the right factors, so taking away a choice will benefit them”. If you follow the link to Thom Lambert’s post, he excerpts a portion of my favorite antitrust case (National Society of Professional Engineers), which is still binding law and prohibits all such “consumers can’t make the right decisions” defenses in antitrust actions:

The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services. “The heart of our national economic policy long has been faith in the value of competition.” … The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers. Even assuming occasional exceptions to the presumed consequences of competition, the statutory policy precludes inquiry into the question whether competition is good or bad.

#3 Comment By hwc On September 20, 2006 @ 8:19 pm

I, for one, am glad if the Presidents of these colleges are meeting to discuss the issue of tuition discounting to attract wealthy (aka high-SAT) students (aka “merit aid”).

The inevitable consequence of bidding wars over wealthy students will be the end of need-only financial aid policies. IMO, reducing the price of college for wealthy students at the expense of students who cannot afford to pay is not a desireable strategy for colleges that have historically had close to zero socio-economic diversity.

#4 Comment By frank uible On September 20, 2006 @ 9:25 pm

If Williams is discussing the actuality or possibility of eliminating or altering ED with any college competitive with it, then it either is not receiving sophisticated antitrust counseling or is ignoring the sophisticated antitrust counseling that it is receiving. There are other ways of skinning this cat without foolishly taking unnecessary legal risks.

#5 Comment By AC 199X On September 20, 2006 @ 9:29 pm

“consumers are stupid and don’t consider the right factors, so taking away a choice will benefit them”.

That’s not my argument at all…Besides, how does taking away ED really take away a choice from consumers? You can still apply to those schools in the regular pool, so you still have “choice.” And the cost of tuition certainly is not impacted by when you apply.

I guess your answer to that would be that you are concerned that whatever percentage of ED applicants that are seriously interested in, say, Williams to make it their first choice (as opposed to the applicants who are gaming the statistical odds of ED) would be harmed if this bargaining chip were to be taken away…I understand that, but you would have to weigh that against the introduction of more competition for those slots from lower-income students who I think shy away from using binding ED because of the unknown financial aid package. I’m not sure if we’re in “rule of reason” or “per se” territory here, but I think there’s a balancing test here.

But more fundamentally, if colleges across the country were to get rid of early decision, would the net effect be anticompetitive or would it foster competition (among both students and schools)? I think if there was no ED, I think you would see (1)a higher number of applications outstanding which makes things more competitive for students; (2)an increase in “the free opportunity to select among alternative offers” since successful applicants would not be bound to attend a school until they could have the opportunity to weigh the final cost of attendance at one school over another before committing. This would foster competition among schools in the merit/need-based aid race to “win” these students? Isn’t keeping ED in the interest of the schools involved here. They get such a strong applicant pool, so it would be convenient for them to pin down the size of their class ASAP, no?

Finally, how do you prove an injury to an applicant here? I don’t know the stats are, but I’d imagine the ED and regular admits to a place like Harvard are pretty indistinguishable on paper. Could the unsuccessful Regular applicant prove that he would have gotten in if an ED option remained?

I think you are wise to point things like this out as a concerned alumnus, but I just don’t see a good antitrust claim (in my, admittedly, lean body of experience with antitrust law) here. I just don’t think the end result harms competition at all. I actually think it’s quite the opposite…

Besides, as a fellow law student, I think we are better off focusing our antitrust energies and skills on introducing some competition in the bar prep course market!