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In 2023, Columbia University announced that it would no longer be participating in US News’ college rankings. At the time, the conventional interpretation of Columbia’s withdrawal was that it signaled the incoming demise of US News’ college rankings. Yet to date, no other elite undergraduate university has followed Columbia in withdrawing from US News’ undergraduate rankings. Could the conventional interpretation about Columbia’s withdrawal be wrong? 

In 1988, Columbia was ranked eighteenth in US News’ college rankings. But in the years that followed, Columbia’s undergraduate rank kept improving. By 2021, Columbia had surged to an all-time high of second. Naturally, Columbia’s breathtaking climb in US News rankings raised questions. What had Columbia done so well? What should Columbia do more of? How could other universities learn from Columbia? Among the people asking these questions was Columbia’s very own math professor, Dr. Michael Thaddeus. Skeptical by nature, he started studying Columbia’s rankings surge. What he found sent shockwaves through higher education.  

In February 2022, Dr. Thaddeus released a 21-page report exposing widespread misrepresentation of data provided by Columbia University to US News’ college rankings. For example, Dr. Thaddeus demonstrated that Columbia’s reported spending per student was inflated by “a substantial portion” of the $1.2 billion spent by its hospital on patient care, a function of the university completely unrelated to education. Because US News’ rankings are calculated, in part, by how much an institution spends per student, this overstatement greatly improved Columbia University’s ranking, or at least that’s what Dr. Thaddeus alleged. 

At first, Columbia intimated that Dr. Thaddeus was mistaken. Eventually Columbia came clean. In September 2022, Mary Boyce, Columbia’s provost, said in a statement, “We deeply regret the deficiencies in our prior reporting and are committed to doing better.” While Columbia’s acknowledgement was a step in the right direction, it was also silent on a crucial question. What possessed Columbia to lie to US News in the first instance?

In the edition of the US News rankings that followed Columbia’s rankings scandal, Columbia was demoted to a rank of 18th. The drop from second to eighteenth was incredibly steep. Observers wondered how it was computed. Indeed, Columbia hadn’t submitted any new data to US News following Dr. Thaddeus’s report. Instead, US News seemingly arrived at the new ranking without accurate data from Columbia to correct the inaccurate data from the past. The speculative nature of the ranking was on display, but so too was something else. While some drop for Columbia was nevertheless proper, was the drop to 18th justified? Or was US News making an example out of Columbia?  

Finally, in June 2023, Columbia withdrew from US News’ rankings, implying that the US News ranking was reductive, flawed, and distortive. After Columbia’s deeply embarrassing rankings scandal, it’s perhaps not surprising that Columbia would leave the party loudly and in protest. But the more interesting question is, if Columbia felt this way about US News’ ranking, why did it stay at the party so long to begin with? Why did it keep lying to muscle its way into the front of the party? And now that Columbia is gone, why are others refusing to leave the party? What explains all these contradictory facts? 

One theory, the charitable theory, is that the elite college ecosystem is just naturally full of uncoordinated institutions, where each institution pursuing its own interpretation of society’s best interests somehow leads to dysfunction in the aggregate. Per this theory, US News tries its best to create a good ranking but falls short because it is impossible to create truly objective ranking. Elite colleges are constantly looking to expand access, as evidenced by their commitment to affirmative action, but they are held back by constraints of resources, now the courts, regulation, or efficiency which are all outside their control. Per this theory, the cost of elite higher education rises because of Baumol’s cost disease. And per this theory, Columbia and other elite colleges don’t purposely lie to US News. Instead, elite colleges get mixed up in vague definitions that lead to understandable mistakes in their submissions. 

But the charitable theory is sometimes hard to swallow, in light of the facts. With each passing year, a different, more cynical theory feels increasingly plausible. Per this theory, elite colleges aren’t just independent, uncoordinated actors, but members of a commercially collusive cartel. It implies that US News is a vital hub for collusion among the elite colleges, helping elite colleges coordinate systemic scarcity of seats and raise each other’s costs. It means that elite colleges aren’t committed to access but its opposite. Per this alternative, the cost of education rises because of market structure, not natural economic laws; and it suggests that if elite colleges are merely doing what’s in their best interests, it’s in the context of a rigged system they designed and uphold. Such a cynical theory is inherently speculative, but is there an obvious reason to reject the elite college cartel theory outright? 

One obvious reason for objection might be that elite colleges are often in conflict with US News, not in cahoots. To take just one example, Columbia certainly wasn’t doing US News any favors, and US News may have retaliated against Columbia. So, how could US News be a hub for collusion, when it is clearly antagonistic to those that it ranks?   

Lessons from The Toy Cartel

A few decades ago, Toys “R” Us was the dominant toy retailer in America. But Toys “R” Us’ future dominance wasn’t assured. The retail toy market was rapidly changing. Disruptive entrants had created a new form of retail experience, the warehouse club.  By 1992, warehouse club chains like Costco, Sam’s Club, Pace, Price Club, and BJ’s were expanding quickly. 

The secret to the warehouse clubs’ success was that they were able to offer far cheaper prices because they slashed all sorts of operating costs. Club stores opened in places where real estate was cheaper, operated with less staff, and decorated themselves in a spartan way. As the President of Costco testified in the 1990s, “almost invariably our presence in the community is going to have a tendency to drive prices down.” 

For Toys “R” Us, there was reason to be nervous. In the early 90s, Toys “R” Us’ average margin on toys was above thirty percent. Costco’s margin on toys was nine percent. When Toys “R” Us’ chairman was asked whether the warehouse clubs could hurt his business, he responded, “Sure they could hurt us. Yeah.” When asked, “How so?,” he sharply replied, “By selling that product for a price that we couldn’t afford to sell it at. Simple economics.”

Competition was coming, but in the early 1990s, Toys “R” Us was still the toy manufacturers’ largest and most important customer, often buying 30 percent or more of the output of Hasbro, Mattel, and others. So, to prevent warehouse clubs from catching up, Toys “R” Us organized a cartel conspiracy with the toy manufacturers. Toys “R” Us offered the toy manufacturers a stronger relationship with itself, but only if they sold inferior products to the warehouse clubs like Costco. 

The conspiracy worked. As the FTC concluded, “By the end of 1993, all of the big, traditional toy companies were selling to the clubs only on discriminatory terms that did not apply to any other class of retailers.” When the toy manufacturers sold inferior toys to warehouse clubs, fewer consumers bought their toys there. For example, Mattel’s sales to warehouse clubs declined from over $23 million in 1991 to under $8 million in 1993. But it wasn’t pure sacrifice for the toy manufacturers. After all, the toy manufacturers were benefiting from Toys “R” Us’ big purchase orders even as Toys “R” Us was benefiting from suppressing warehouse clubs’ emergence as a threat in the retail toy market. 

Still, it wasn’t an easy cartel to operate. Some of the toy manufacturers wanted it all. They wanted to have a strong relationship with Toys “R” Us and they wanted to secretly increase their sales to the warehouse clubs too. As Toys “R” Us’ then-President Roger Goddu testified, “I would get phone calls all the time from Mattel saying Hasbro has this in the clubs or Fisher Price has that in the clubs…. So that occurred all the time.” Importantly, if one toy manufacturer cheated, the other manufacturers that stayed true lost out on market share. A cartel couldn’t run like that.  

In response, Toys “R” Us had to punish the cheating toy manufacturer for defecting from this toy cartel. Toys “R” Us would withhold its own orders from that cheating firm until it got back in line by pulling out of the warehouse clubs. Punishment from Toys “R” Us was key to making the whole system work. Indeed, the toy manufacturers acknowledged as much, often explaining to Toys “R” Us executives that they wouldn’t be a part of the toy cartel unless their competitors were too.      

The structure of the toy cartel was a variation on a traditional horizontal cartel. Instead of competitors colluding among themselves, a third-party ring leader helped them coordinate. Such a cartel has many names. Sometimes, it is called “hub-and-spoke.” Other times it is known as “rim-and-wheel.” I prefer “head-and-tentacles.” Whatever one calls it, it’s often illegal; and, Toys “R” Us and the toy manufacturers found that out in both Administrative and Appellate Court after the FTC sued them for antitrust violations in 1996. 

Why Rankings Matter

Returning to the elite college market, one major question implicit in the elite college cartel theory is whether the obvious tension between US News and the elite colleges it ranks is consistent with a cartel theory. As the toy cartel demonstrates, however, antagonisms are often a natural part of cartels, far from being inconsistent with, some antagonism may be evidence of a cartel. Ultimately, wasn’t US News’ demotion of Columbia all the way down to 18th, after Columbia got caught cheating, eerily reminiscent of the punishment Toys “R” Us used to dole out to promote cartel compliance? 

A different reason to scoff at the elite college cartel theory is that the mechanics of US News’ not-so-rigorous ranking surely couldn’t coordinate the policies of universities, each with billions of dollars, sometimes tens of billions of dollars, in their endowments. How could the satellite dictate the movements of the planet?  

One reason may be that rankings are an odd market. Credit rating agencies are often much smaller than the companies, states, or nations that they rate. Yet credit ratings often have huge effects on the valuations of those larger entities. For the unfamiliar, US News publishes the “definitive” college ranking. While other publications also publish rankings, US News has near monopoly market share, measured by views, in the college rankings market. Within the first few days of its annual releases, US News’ college ranking routinely captures tens of millions of views from anxious students and parents. One study finds that being on US News’ top 25 list can lead a school’s applications to go up between six and ten percent. A 2013 Harvard Business School study found that “a one-rank improvement leads to a 1-percentage-point increase in the number of applications to that college.” Empirically, when Cornell rocketed in US News’ rankings from fourteenth in the fall of 1997 to sixth in the fall of 1998, applications to Cornell rose by over ten percentage points the following cycle. To the extent that competition among elite colleges exists, Stanford Sociologist Mitchell Stevens describes US News’ rankings as “the machinery that organizes and governs this competition.” 

One reason rankings are so influential is that choosing a college is a complicated purchase. Young prospective students just don’t have the ability to forecast differences between four-year experiences with very little information about colleges themselves. Therefore, students and their parents often rely on proxy information, and the US News’ rankings are deeply influential in the admissions process. Plainly, a high US News ranking is a critical input that a college needs to compete in the elite college market. Therefore, because US News is a necessary upstream supplier for elite colleges, it is perfectly positioned to play the hub, consciously or unconsciously. Still, just because students rely on rankings doesn’t explain why students rely on US News’ ranking uniquely. How did US News become so dominant, and why can’t it be replaced?

US News’ path to dominance was paved by elite colleges. The incumbent elite universities of the 1980s implicitly agreed to lend US News an air of credibility, by filling out annual surveys, something that made US News popular with students. In parallel, US News’ helped the incumbent elite universities extend their incumbency into the future by creating a ranking that rated them highly not for their educational quality, but instead for their wealth and exclusivity. It’s unclear how conscious or unconscious this partnership between US News and elite colleges was. Maybe it was totally unconscious, with both sides merely pursuing their dominant business strategy. 

Regardless of the mental state, the descriptive truth is that this basic relationship between elite colleges and US News is still operative today. Harvard helps US News dominate the college rankings market in the present, and US News helps Harvard extend its dominance in the elite college market in the future. Bob Morse, one of the architects of US News’ rankings, admitted as much in an interview in 2009 saying, “When the public sees that the schools are wanting to do better in our rankings, they say, well if the schools want to improve in these rankings, they must be worth looking at. So, in essence, the colleges themselves have been a key factor in giving us the credibility.” Credibility is the most important factor for a ranking to be successful. Students and parents can’t independently adjudicate the quality of a ranking for the same reason that they can’t independently adjudicate the quality of a college: it’s complicated and subjective. Therefore, the ranking with the most credibility wins out with students and parents. And a path of least resistance to such credibility was to get the incumbent elites to qualify US News as worthwhile.   

US News likely knows that it can’t afford to lose the support of the incumbent elite schools; without it, US News couldn’t offer a credible ranking. US News likely knows that it cannot afford the perception of a boycott from those incumbent elite colleges. This may be why US News publishes a ranking that weights selectivity at seven percent, financial-resources-per-students at ten percent, class-size at eight percent, student-faculty-ratio at one percent, and colleges ranking each other at twenty percent. The US News ranking criteria has a very simple logic. As Washington Monthly magazine observed in 2000, “the perfect school is rich, hard to get into, harder to flunk out of, and has an impressive name.” 

There may well be evidence of hyper-elite colleges lobbying US News for changes to this or that criteria to better serve their needs. Yet even in the absence of such an explicit conspiracy, US News uses a criteria that self-justifies why incumbents are already on top of the prestige ladder. Presumably, both US News and the elite colleges know this. But the circular logic of US News’ rankings doesn’t just keep the elite colleges on top. It also incentivizes them to become more extreme versions of themselves. 

US News incentivizes colleges to pull in more applications so they can reject them. US News incentivizes colleges to stagnate enrollment growth. US News incentivizes colleges to raise prices further and spend more money per student. Worse, US News incentivizes less-elite colleges to adopt all the worst parts of the elite colleges, such as out-of-control spending. 

Plainly, incentivizing colleges to spend more money to compete in the elite market raises barriers to entry by shifting supply curves up for each participant. Plus, incentivizing colleges to be unduly rejective to attract students forces colleges to undersupply more than they otherwise would. In sum, US News’ rankings incentivize intense market dysfunctions like scarcity on the supply side.   

Per the elite college cartel theory, the role of Toys “R” Us is played by US News. US News allegedly coordinates collusion among all the different elite colleges. But the way US News allegedly coordinates its spokes is subtle and ingenious, as it facilitates seat scarcity coordination through its ranking formula instead of explicit communication. In this narrative, US News became dominant precisely because it chose to play the coordinating role that elite colleges may have wanted, and it played that role just as elite colleges may have wanted it to.

There are facts that support an inference of collusion. For one, links between US News and hyper-elite colleges are deep. In the 2000s and 2010s, Mortimer Zuckerman, the owner of US News, became a mega-donor to Ivy League colleges like Harvard and Columbia. He served on the Board of Trustees at Princeton. In that same period, US News’ monopoly consolidated. The hyper-elite colleges continued to support the regime. They didn’t boycott the rankings. They embraced them, continuing to give US News exclusive answers to surveys that no other ranking receives. When President Obama’s administration sought to roll out a public competitor to US News’ college rankings in 2013, elite college administrators rallied to kill the ranking effort. Instead, the public got a limp scorecard, and US News didn’t face a public, credible competitor. 

For another, elite colleges have horizontal links among themselves. For instance, there is large surface area for coordination in things such as lobbying for government policies, joint research, patent commercialization, and admissions. Moreover, elite colleges often have interlocking governance boards. Jurisprudentially, these types of interlocking links have supported inferences of conspiracy in many antitrust cases. 

Empirically, elite colleges have been pulled into court for allegedly collusive cartel behavior before. The Ivy League colleges were sued by the Department of Justice for fixing prices on financial aid in the 1990s. In 2022, a group of seventeen elite colleges was sued for price-fixing by a class of students on financial aid. The NCAA has been sued many times for cartel tactics that limit compensation for student-athletes. So, might seat scarcity, and exclusion of competitors, be another area where elite colleges collude?

Lastly, another factor supporting an inference of conspiracy are the market dynamics themselves. The demand for seats at elite institutions has proven to be remarkably inelastic. If the Varsity Blues scandal proves anything, it’s that people will go through a lot of trouble to capture a seat at an elite school. Importantly, inelastic demand, in other markets, has attracted cartel formation. For example, OPEC operates in the inelastic oil market. Big tobacco companies operate in the inelastic cigarette market. In those markets, cutting output by one percent has often raised prices by more than one percent, making scarcity a profitable strategy.   

In some markets with inelastic demand, a cartel isn’t needed to produce scarcity because only one or two companies control the entire market anyway. But the elite college market isn’t like that. Many different elite colleges exist. Without some machinery to coordinate scarcity, it likely would not be possible to produce systemic scarcity. 

In a system structured as ours, explicitly or accidentally, Penn’s acceptance rate necessarily drops from 47 percent in 1991 to less than 6 percent in 2023. As authors Carnevale, Schmidt, and Strohl quantify, in their book, The Merit Myth, “There are 1.5 million high school seniors with better than an 80 percent chance of graduating from one of the top 193 colleges, but those colleges annually admit only 250,000 freshmen.” As economists Kent and Smetters quantified in 2021, if elite colleges ignored relative prestige and simply maintained student quality, since 1990 their total enrollments would have doubled or tripled. Instead, Harvard, Princeton, Yale, and Stanford only increased enrollment by seven percent between 1990 and 2015. 

Let’s be clear: The artificial scarcity in slots, made possible by the ranking system, allows elite colleges to under-produce relative to a world in which such coordination was not possible; and by under-producing, the elite colleges are able to impose supra-competitive prices for admission.   

You can see the market failure all around you. Tuition prices keep rising well beyond the average inflation rate. Scarcity-induced admissions scandals like Varsity Blues continue to pop up. But perhaps the most obvious sign is that the demographics at formerly less exclusive colleges have also gone wacky. The rankings are warping the whole market into copycatting the worst parts of the hyper-elite colleges. Safety schools have morphed into reach schools. Reach schools have slipped out of sight. Seats at American universities have turned needlessly scarce, and the privileged few have largely outcompeted the aspiring many for those seats.  

Indeed, elite colleges might object to the entire conjecture of this article. They might say that there is no fusion between themselves and US News. They might claim that they are increasingly diverging from US News’ rankings. They might point to their boycott of the US News’ law school rankings. Harvard might point out that it pulled out of US News’ medical school rankings. 

Yet it’s not clear if these objections comprehensively rule out a cartel explanation. Even if elite colleges are pulling out of US News’ rankings at the graduate levels, they refuse to do so at the undergraduate level. There is absolutely no evidence that a boycott is forthcoming for the undergraduate rankings. Instead, we see only continuing participation. Importantly, undergraduate rankings matter far more than law school or medical school rankings. They matter more because an elite college’s undergraduate reputation is also often used as a proxy for its graduate programs. 

Pitiful Growth in Seats

Skeptics might also assert that elite colleges have always been exclusive, independently of US News. Elite colleges might argue that the whole reason that they’re elite is because they’re exclusive. This argument is more persuasive on first glance than on close examination. While it’s true that elite colleges must reject some students to maintain class quality, the question is one of degree. 

How exclusive does an elite college need to be? Do we need Ivy League colleges to reject 95 percent of applicants? Or will rejecting 80 percent, as they did in the 1980s, suffice? It is a false argument to assert that growth and quality are necessarily opposed. For example, before the rankings-era, Stanford increased its enrollment by over 250 percent from 1920 to 1970. It managed to stay very elite in that period of time. 

Nor is undue rejection necessary to maintain academic quality. A common quip on Harvard’s campus is that the hardest thing about Harvard is getting in. There are many students of diligent character and great intellect who are routinely rejected by the elite colleges, and those rejections have nothing to do with quality. Instead, those rejections may be the collateral damage that a hub-and-spoke cartel produces. Absent this concern for relative prestige, driven home by the rankings, the elite colleges would naturally admit more students.

Elite colleges might alternatively object that acceptance rates are a poor measure for increasing exclusion. They might argue that each student applies to far more schools than she once did. This is true. But the reason each student applies to more schools today is because she is dramatically more likely to get rejected at each one. If you leave behind acceptance rates, and merely look at raw numbers, the growth in seats at elite colleges has been pitiful. As Economists Kent and Smetters explained in 2021, “While college enrollment has more-than doubled since 1970, elite colleges have barely increased supply, instead reducing admit rates.” For example, in the 2005–06 school year, Yale enrolled 1,321 undergrads, and in 2016–17, Yale enrolled a whopping 1,367 students.  

A market fundamentalist might argue that the scarcity produced by elite colleges is opening space for formerly less elite colleges like Tulane and BU to fill the new market need by becoming more exclusive themselves. Fundamentalists might argue that the market is responding as it should, by creating more supply to meet the growing demand of qualified students eager for prestigious degrees. But, of course, such fundamentalists miss the crucial point. 

At what cost is Tulane filling in for Penn? The rankings that US News has set up requires everyone to get more expensive. So, as more  students were rejected by Penn, Tulane experienced an increase in demand for its slots, which justified higher prices. Even then it’s not a real substitute. As economists Blair and Smetters quantified in 2021, the consumer welfare loss of being rejected from Harvard, Yale, Stanford, or Princeton is estimated to be around 140 percent of the mean total tuition, an amount in the order of hundreds of thousands of dollars. This is despite the rise of the so-called substitutes. 

In the end, whether the elite colleges have explicitly colluded to produce dysfunction or whether it is some freak accident is probably the least interesting thing about the elite college market to the vast majority of Americans. For the average student coming of age, it doesn’t matter if the elite college market is dysfunctional because of an explicit conspiracy or because of an unfortunate accident of market development. What matters to the applicant is that she may not be accepted to the college of her dreams because rankings incentivize each elite college to slow growth in enrollments. With each new college scandal, a simple fact becomes more and more clear. We need a serious conversation about how to restructure this market.

Sahaj Sharda is a student at Columbia Law School and author of the book The College Cartel.