Thursday, August 18, 2022

Digitization and University Market Structure

Arizona State University (ASU) will enroll 140,759 students this year. They plan on continuing to increase enrollment aggressively. Some are larger, but for decades most higher-tier US universities have enrolled 30,000 to 40,000. ASU was at around 50,000 students less than a decade ago. So this is a huge jump. This can be interpreted as the university Minimum Efficient Scale (MES), where costs per unit is at its lowest, has increased three or four fold.

ASU has done this by being aggressive about online education. Nearly half of these students will be online. Michael Smith has a project examining the economics of digitization in higher education. Digitization represents some key differences. For example, quality of instruction may be harder to maintain, but this may simply reflect fits and starts in using the technology. But a nearly universal finding is that information goods scale considerably. And this increases the MES considerably. More of ASU's enrollment increases are from out-of-state students and international students than most universities. If this trend continues, more students will be served by many fewer universities that are not constrained regionally. Or, competition between universities will increase dramatically. Who will the winners and losers be?

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