Overlap and Antitrust: Fixing Prices in a Smoke-Filled Classroom

• Author: George B. Shepherd
• Published date: 01 December 1995
• Date: 01 December 1995
• DOI: http://doi.org/10.1177/0003603X9504000404
• Subject Matter: Domestic Antitrust

The Antitrust BulietinlWinter 1995 859

Overlap and antitrust: fixing

prices

in

asmoke-filled classroom

BY GEORGE B. SHEPHERD*

The Overlap agreement, upon which the Third Circuit focused in

United

States

v.

Brown

University,

5 F.3d 658 (3d Cir. 1993), per-

mitted elite colleges and universities to fix undergraduate stu-

dents'

financial aid levels. This article models the market for

undergraduate education, and examines Overlap's substantial eco-

nomic and social impact. Such an analysis is important not only to

understand Overlap and its effects, but also to explore the appro-

priate relationship between the antitrust laws and nonprofit orga-

nizations, both in education and in other contexts.

I find that Overlap produced several distortions and inefficien-

cies, and caused a large wealth transfer from students and their

*Assistant Professor of Law, Emory University School of Law.

AUTHOR'S NOTE: 1thank Fred S. McChesney, Timothy Bresnahan, Anto-

nio

F. Ciccone, William K. Jaeger, A. Mitchell Polinsky,

Joseph

E.

Stiglitz, Gordon C. Winston, and seminar participants at Emory Univer-

sity, Stanford University, and Williams College

for

helpful comments. 1

am especially indebted to Thomas C. Arthur, Roger G. Noll, and William

G. Shepherd for their extensive advice. The article builds on analysis in

Donald R. Carlson &George B. Shepherd, Cartel on Campus: The Eco-

nomics and Law of Academic Institutions' Financial Aid Price-Fixing, 71

OR.

L. REV. 563 (1992).

© 1995by Federal Legal Publications. Inc.

860

The antitrust bulletin

families to the elite institutions. Despite the admirable purposes

that the institutions expressed for Overlap, the agreement, in sub-

stance,

was

ahorizontal agreement among

competitors

to fix

prices. The agreement violated the antitrust laws; that a smoke-

filled room is a classroom does not make the agreement that com-

petitors reach inside it any less harmful or illegal. My analysis

includes adiscussion of a creative recent paper in the

Antitrust

Bulletin

that argues that the agreement benefited the economy and

furthered various noble goals, and so did not violate the antitrust

laws.'

The

history

of

the

Overlap

group

has

become

quite

well

known.s A group of twenty-three leading colleges and universi-

ties,

including

the

Ivies,

met

each

year

to

decide

the

price-tuition

plus costs minus financial

aid-that

each institution

would charge any student that more than one institution admitted.

That is, the agreement forbad the group members from competing

for students by means of price. In addition, the schools exchanged

extensive information about each student's financial resources.

After the Justice Department sued the Ivies and MIT in 1991, all

but

MIT

entered aconsent decree that required the schools to

refrain from discussing aid for commonly admitted students. In

contrast,

MIT

litigated on. MIT lost in the trial court, but found

some support for its position in the Third Circuit, which remanded

to the trial court for full rule-of-reason analysis.' The case then

settled, with the Justice Department's agreeing to permit MIT to

continue some, but not all, of the challenged Overlap practices.

Frances F. Esposito &Louis Esposito, Monopolization, Social

Welfare and Overlap, 40

ANTITRUST

BULL.

433 (1995).

See, e.g., 5F.3d at

661-65;

Richard

Morrison,

Price

Fixing

Among Elite Colleges and Universities, 59 U.

CHI.

L.

REV.

807 (1992);

Theodore J. Stachtiaris, Note, Antitrust in Need: Undergraduate Finan-

cial

Aid

and

United States v. Brown University, 62

FORDHAM

L.

REV.

1745 (1994); Julie L. Seitz, Comment, Consideration

of

Noneconomic

Procompetitive Justifications in the MIT Antitrust Case, 44

EMORY

L.J.

395 (1995).

United States v. Brown Univ., 805 F. Supp. 288 (E.D. Pa. 1992);

United States v. Brown Univ., 5 F.3d 658 (3d Cir. 1993).