REVIEW PROBLEM #4: IVY LEAGUE PRICE-FIXING

We discussed Questions 2, 3, 4 & 6 in class, so they are not included below.

(1) In assessing the significance of challenged practices, should the court have treated the universities’ financial aid pools as fixed or assumed that universities can always transfer funds from other parts of their operation?

Obviously, a university could move some more money into financial aid, but the budget is less flexible than you might imagine. Much of a university’s budget comes from donations earmarked for particular expenses (e.g., buildings, scholarships, endowed chairs) and much of the rest comes from largely unavoidable expenses (e.g., salaries for tenured professors, retirement and medical benefits, utilities, interest on past borrowing, basic maintenance). Any significant shift of resources toward financial aid must come either from a tuition increase or from reductions in some other type of relatively discretionary spending (e.g., new faculty hiring, refurbishing landscape or old buildings, new programming, upgrading technology) .

In the two or three years following the settlements in the case, there was some evidence that the Overlap schools spent some more money on financial aid than they had before. This may have resulted from the end of collusion on aid packages, suggesting that the court should not have treated the pool as fixed. However, this increase also might have been the result of unrelated market conditions like the fact that college expenses were increasing at a rate faster than most people’s incomes.

(5) Do you think that the agreement, on balance, benefited society?

Your answer to this question will depend on your assumptions and your political beliefs. Some relevant considerations:

(A) What the Agreement Did Not Do:

  1. Evidence suggested there was no effect on average net tuition.
  2. There was no effect on the number of slots available at the overlap schools (probably the relevant measure of output)
  3. The presence or absence of the agreement does not affect the ability of top applicants to get into some good school.
  4. The presence or absence of the agreement does not affect the ability of top applicants to accept better financial aid packages from schools outside the overlap group, some of which are equivalent in prestige.

(B) Likely Effects of the Agreement

  1. Students receiving financial aid can choose among overlap schools on the basis of important criteria other than money (e.g., size, location, programming)
  2. If we view the financial aid pool as fixed:
  3. Without the agreement, more slots will go to “less qualified” wealthier students who can afford to attend these schools without aid.
  4. With the agreement, a larger percentage of the“most desirable” students go to the overlap schools, which in turn increases the relative prestige of the schools.
  5. If we view the financial aid pool as flexible, perhaps all that happens is a wealth transfer to the“most desirable” students and some more of these students deciding among overlap schools on the basis of money.

(7) Is it within the province of the courts to carve out an antitrust exception for higher education?

This question raises the more general issue of when, if ever, it is appropriate for courts to “amend” statutes by adding exceptions not articulated by the legislature. On the one hand, you can argue that courts should give effect to the democratic voice of the legislature and take statutes as literally as possible. On the other hand, you could argue that a court should address situations the legislature probably didn’t contemplate by interpreting the statute in ways that avoid absurd results or that further the purpose of the statute, even if inconsistent with some literal language.

In the context of the Sherman Act, the Supreme Court has provided us with some arguably inconsistent arguments. In cases like Professional Engineers, the Court says requests for exceptions to address public policy concerns should be addressed to Congress. On the other hand, in softening and limiting the per se rule in the last 30 years in cases like BMI, NWWS, and especially Leegin, the Court has treated the Sherman Act essentially as a grant of authority to the Supreme Court to develop a common law of competition. Under that approach, it would make sense for the Court to have power to carve out exceptions.