Permanent excess demand as business strategy: an analysis of the Brazilian higher-education market

Produced by: 
INSPER - Instituto de Ensino e Pesquisa
Available from: 
November 2013
Paper author(s): 
Eduardo Andrade (Instituto de Ensino e Pesquisa)
Rodrigo Moita (Instituto de Ensino e Pesquisa)
Carlos Silva (Pontifícia Universidade Católica do Rio Grande do Sul)
Microeconomics, Competition and Productivity

Many Higher Education Institutions (HEIs) establish tuition below the equilibrium price to generate permanent excess demand. This paper first builds on Becker’s (1991) theory to understand why the HEIs price in this way. The fact that students are both consumers and inputs on the education production function gives rise to an equilibrium where some firms have permanent excess demand. Second, the paper analyzes this equilibrium empirically. The results show that the HEIs give up 7.6% of the revenue coming from a freshman class in order to have better students and to differentiate themselves as high quality in the market.


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