Tie-In Sales and Universities

By Richard Vedder

One student on last night's excellent Fox news special on higher education really caught my attention. He was complaining how he had to pay a health center fee even though he had insurance and would never use the services. Other students complain that have to pay "activity fees" to support rec centers they never use, or to pay for seats for football games they never attend. These fees are often substantial, and are growing in both absolute and relative importance.

When the seller of a good forces the buyer to purchase two (or more) goods and services, it is called a tie-in sale. Antitrust officials are often suspicious of tie-in sales, although personally I see nothing inherently wrong with them. A cell phone provider will sell you a phone dirt cheap, but only if you agree to use its phone services for, say, two years.

The difference with university tie-in sales are two-fold. First, the second good or service that is "tied in" often is nothing remotely connected with the primary good. Second, universities often have a strong, near-monopolistic hold on students after they have made an initial selection of schools, given high movement costs because of limited transferability of credit and other considerations. On the first point, universities often make you buy housing services and food services along with educational services. They make you buy entertainment services (supporting intercollegiate athletics) along with instruction. They make you buy medical services.

Often these tie-in sales are used to disguise increases in the price of services. University A wants to raise its tuition 6 percent, but the legislature says it can raise it only 5 percent. To make up the revenue the university wants, it raises room and board charges 6 percent instead of the 4 percent needed to keep up with inflation.Or the school may initiate a new "technology fee" to pay for computer labs, with the fee paid for even by students with their own laptops who never ever use the computer labs.

The student gripes about mandatory fees have some basis to them, and we need to focus more of our efforts in measuring these fees, and exposing abuses of the use of them. Most often, universities should simply get out of the businesses financed by student fees, especially food and lodging, allowing seasoned firms specializing in those areas to provide the requisite services when requested by students.