We estimate a new equilibrium model of private and public school competition that can generate realistic pricing patterns for private universities in the U.S. We show that the parameters of the model are identified and can be estimated using a semiparametric estimator given data from the NPSAS. We find substantial price discrimination within colleges. We estimate that a $10,000 increase in family income increases tuition at private schools by on average $210 to $510. A one standard deviation increase in ability decreases tuition by approximately $920 to $1,960. Access to a fully diversified public school system increases welfare by $465. Joint with Dennis Epple (Carnegie Mellon University and NBER), Richard Romano (University of Florida), Sinan Sarpca (Koc University), Melanie Zaber (RAND Corporation).
KEYWORDS: Higher education, private and public colleges, competition, federal nancial aid policies, peer effects, price discrimination, market power.