In the article Carey (2017) details how private colleges in the United States use price discrimination to charge different fee amounts to different students depending on the incomes of their parents. The writer explains that these colleges use discounting as a form of concealed price discrimination. Further, Carey explains the concept of price discrimination using pricing in the airline business (2017).
The writer points out that the discount rates of college tuition are on the rise since colleges have perfected price discrimination. Carey (2017) explains that vacancies in the residential colleges are “finite and expensive” and thus colleges are only willing to take a limited number of students annually.
Carey also notes that colleges are unwilling to sell the slots at the same market price (2007). The colleges are using different prices for the rich students who have the colleges as their only choices. As a result, the colleges set a high fee for tuition then start discounting using the same theories used by airlines.
The writer also asserts that price discrimination is only possible for scarce products and complicated markets. Carey (2017) explains this point using the airline example whereby consumers want to buy the limited number of airplane seats for complex reasons, which occasion the business and first-class cabins.
Carey also argues that
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The colleges are discounting tuition to attract and retain the students who may be unable or unwilling to pay the full sticker price. Further, the demand for education in the public sector is dependent on the aggregate demand for education as well as the relative costs and benefits per student. However, if the marginal rate of substitution between the private and public sectors approaches 1 then shocks occurring in the public sector are likely to create large fluctuations in demand for private college