Market share and competition

In the Dutch weekly journal ESB (Economic and Statistical Reports), economists from the universities of Groningen and Rotterdam presented an interesting article. Their starting assumption is that high student evaluations will have a positive effect on the market share of universities. After all, if a programme in a particular university is highly ranked by students, more students will chose this particular university to attend that programme.

The authors collected six year of student evaluations where students rate their programmes on a scale of 1-10  (as published annually in the Dutch weekly magazine Elsevier). Market share for each programme/university combination was calculated by dividing the number of students in programme X in university Y by all students in the Netherlands in programme X. When the evaluation of the programme is compared with the market share, we get the following graph:


On the basis of this finding (and the results of a simulation that they run), they present some interesting conclusions. I won’t go in details, but one of them is that there is no clear relation between evaluation and market share. Hence, students have other criteria than quality in the choice of where they will attend university (especially location, and in particular the distance to their place of residence).

In their discussion, the authors indicate that this shows that competition on the basis of quality is not really taking place in the Netherlands. One reaction could be that the government should enable universities to compete on the basis of price. In other words, universities should be able to set their own tuition fees. This is currently not allowed for Dutch and EU students and the government decided last week that this will not be possible in the near future.

I could pose an alternative hypothesis on the interpretation of the results. The results show that students don’t take quality of education into account in their decision-making process. This could indicate that students don’t purchase a service (a high quality education), but a product (a degree). Universities should therefore emphasise the quality of their degrees, not the quality of their education. If the value of the degree differs per university (reflected in the opportunities to enter the labour market in higher positions or on a higher remuneration), the students will take this into account. This then would mean that universities are better of improving their position in rankings, attracting more prestigious scholars (like Nobel laureates) and increase their budget for marketing. This will bring them a in a better competitive position. On the other hand… maybe economics doesn’t provide answers for everything…

Erjen van Nierop, Peter Verhoef, Philip Hans Franses. Studie Evaluaties en marktaandelen van universiteiten (subscription required). Economisch Statistische Berichten, 4 April 2008.

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