It's Like the Mafia

I am referring, of course, to the Ivy Leage and its fellow "Elite" universities, who are being sued for operating as an illegal cartel.

This was made illegal in the late 1990s, though only barely, because Ivy League made men were Bill Clinton's kind of people:

Sixteen major U.S. universities, including Yale University, Georgetown University and Northwestern University, are being sued for alleged antitrust violations because of the way they work together to determine financial-aid awards for students.

According to a lawsuit filed in Illinois federal court late Sunday by law firms representing five former students who attended some of the schools, the universities engaged in price fixing and unfairly limited aid by using a shared methodology to calculate applicants’ financial need. Schools are allowed under federal law to collaborate on their formulas, but only if they don’t consider applicants’ financial need in admissions decisions. The suit alleges these schools do weigh candidates’ ability to pay in certain circumstances, and therefore shouldn’t be eligible for the antitrust exemption.

The settlement requires that admissions be need blind under all circumstances, and is as clear as the nose on your face, they admit some students because their daddy is rich and donates to the school.

Jared Kushner is a classic example of this.

The suit seeks damages and a permanent end to the schools’ collaboration in calculating financial need and awarding aid.

College admissions practices are being challenged more broadly and pillars of the decades-old admissions system are crumbling.

………

In addition to Yale, Georgetown and Northwestern, other named defendants in the suit are: Brown University, the California Institute of Technology, the University of Chicago, Columbia University, Cornell University, Dartmouth College, Duke University, Emory University, the Massachusetts Institute of Technology, the University of Notre Dame, the University of Pennsylvania, Rice University and Vanderbilt University.

………

In 1991, all eight members of the Ivy League and MIT were charged with price fixing. Prosecutors said representatives from the schools would meet to discuss their anticipated aid offers for students who had been admitted to more than one school. This practice unfairly limited price competition, prosecutors said. Schools said the approach eliminated bidding wars and allowed students to choose schools based on fit rather than on price.

BTW, that bit about choosing on fit/quality is something that all monopolists say, as did a relative of mine who was a college president.  It's bullsh%$.

Cartels continue to compete, just not on price. 

They can do this because the social connections formed at the schools, though not necessarily the actual quality of education, create what can generally be described ad, "Made Men."

Matt Stoller, who is one of my go to guys on monopolies, oligopolies, and cartels, goes into some more detail:

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. 

(emphasis mine)

And this is how they engage in selling admissions, which is the antithesis of this:

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.

The evidence about this sort of behavior is pretty clear:  It increases the costs to their customers, and it's pretty clear that they are breaking the law, because the development office is in constant contact with the admissions office to make sure that moneybags children get in so that they get big donations.

It's all very public.  There is no secret conspiracy here.  It's all done out in the open.

Also, read the essay Break up the Ivy League Cartel mentioned above.  It makes a very strong argument that the meritocracy is an argument used by the elites to preserve their positions and pass them down to their children.