Pricing Ethics

Somebody over at Crooked Timber drew my attention to “Moral reasoning and Higher-Education Policy” written by two high-end liberal arts college president types. They get things rolling by stating “even students who pay full tuition receive sizable subsidies” and it goes onto revealing some of what goes on behind the scenes as schools try to manage their pricing in a system that “rests on a set of ethical judgments” and is “heavily regulated by the federal government.”

Portions of the essay are just great, particularly if you enjoy scandalous paranoia.

The colleges in effect say, “Share with us these quite intimate details of your personal financial situation, and we in turn will use that information, to identify those who need our help”

Yet our current situation is rather troubling. The colleges still get families to provide that information, but the idea that they will not use that information for competitive advantage is largely obsolete. Many institutions use it, for example, to exclude students whom they can’t afford to aid. They … try to charge … highest “net” price they will be willing to pay.”

That phrase “willing to pay” is the touch stone of a discriminatory pricing; the means to garnering the maximum profit for the goods your selling is always a question of discovering what the maximum the buyer is willing to pay. This behavior is good self interested economics and it is a lot easier if you can get him to reveal more private information. Of course if buyers catch you then a “A good deal of trust has been drained from the system…”

They mention some particularly thorny examples of information, conveniently available, that an economically rational school is tempted to use and which they suspect some do. For example signing the admission’s guest book signals an increased desire and so should raise the price offered. Same story if your parents attended the school.

Having just read that I was amused by this similar example from the payment’s industry. It’s an Ad show’s the consumer getting a coupon on their purchase because the payment system knows their payment habits, that they are shopping with a competitor, and so a discount is in order.

Pricing games are deeply entwined with privacy and secrecy. So for some reason it seems only right that that paper on ethics in university management is behind garden wall where the consumers won’t see it. But that’s sad because it is a very good very nuanced essay.

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