Price Fixing

question 37

Essay

Price Fixing. From 1989 through 1991, the Department of Justice (DOJ) investigated a number of private, selective colleges for price fixing. The investigation eventually settled on an "overlap group," comprised of about one-half of the most selective private colleges in the United States. The group included 23 colleges, from small liberal arts schools like Colby, Vassar, and Middlebury to larger universities like Princeton and MIT. Some students applied to more than one of the 23 schools and, each spring, officials from these institutions met to coordinate the exact calculation of such students' financial need. The case broke new ground in antitrust theory.
The DOJ alleged that the meetings enabled the colleges to collude on higher tuition and to increase their tuition revenue. The colleges defended their meetings by saying that they had to have some coordination in order to successfully implement their commitment to fully cover the need of any student they admitted. The colleges wanted to pull needy, able students into the pool of students who applied to selective private colleges because they saw such students as a "public good" for all their students. Yet, no college wanted to end up with a disproportionate share of the needy students simply because it had unintentionally made more generous need calculations than the other colleges. (All of the colleges attempted to use the same formula for need, but varying and difficult-to-interpret information from parents introduced some actual variation in their calculations.)
Although the colleges denied the price-fixing allegation, they discontinued their annual meetings in 1991. Nor did they resume, even after a federal Court of Appeals rendered a decision in their favor.
A. How would you determine if the "financial-aid overlap" meeting is an example of price fixing?
B. If price fixing did indeed occur at these meetings, which laws in particular might be violated?

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Definitions:

American Mainland

Refers to the continental part of the United States excluding Alaska, Hawaii, and other offshore territories.

Dutch Loans

Financial loans provided by the Dutch to other countries or entities in the past, significant in early American history for helping to finance the American Revolutionary War.

Revolutionary War

The conflict between the thirteen American colonies and Great Britain (1775-1783) leading to American independence.

Chesapeake Gentry

Refers to the affluent, land-owning class in the Chesapeake Bay region during the colonial and early United States periods, characterized by their plantation economy and reliance on indentured servants and slaves.