ANTITRUST AND HIGHER EDUCATION: MIT FINANCIAL AID (1993)

1. ANTITRUST AND HIGHER EDUCATION: MIT FINANCIAL AID (1993) Presented by: Jim Sever Megan Carle

2. Case Background • What is the Overlap Network • Which schools are involved • How is their financial aid policy applied • What is the problem and what issues does it raise

3. Case Chronology • 1991 DOJ sues Overlap Network • The Ivy League schools soon settle the case • MIT continues with legal action • MIT found in violation of Sherman Act in 1992 • Subsequent Congressional Action in fall of 1992 • MIT wins appeal in Appellate Court in 1993 • Government and MIT reach a settlement

4. Sherman’s Intentions • Act of 1890 outlaws “every contract, combination…or conspiracy in restraint of trade.” • Sherman did not intend it to charitable activities • Is there room for interpretations? • Should there be?

5. Profit vs. Not-for-Profit Firms • For-profit firm: MAXIMIZE PROFITS! • Not-for-profit firm: • Does not pay out profits (dividends) • Socially desirable goals • Response to “market failures”

6. US Government Position • Clear per se violation of the Sherman Act • MIT by engaging in commercial conduct nullifies their non-profit protection • Overlap process by nature and effect is price fixing • Consequence of the behavior of the Overlap schools was to increase tuition revenue • Social policy justification is irrelevant

7. MIT ’s Position • MIT disputes designation that Overlap process is a block to trade and commerce • Sherman Act was never intended to be applied this way • Rule of reason exception rather than per se • Comparison to Collegiate Athletic exemption • Behavior justified on social grounds, with the statistical evidence to support it

8. Regression Statistics Results • Cost less than non-Overlap schools • All else equal, highly selective schools more costly • No statistical evidence linking Overlap to higher prices • Income distribution of scholars at Overlap schools

9. District Court Sherman Act applies Commerce is being impeded Abbreviated rule of reason analysis MIT must defend with affirmative defenses Court of Appeals Overlap system does constitute commercial behavior Social justification is still a strong mitigating factor Need to evaluate procompetitive factors What the Court ’s Said

10. 1993 Settlement • Information can be exchanged among the Overlap schools • No information on individuals until after aid offers are made • Overlap cartel never met after settlement Source: “Ivy League Duplicity”, Eric Neutuch

11. Diversity at schools Affirmative Action? Definitely prevented price competition Social Goals vs. Price-Fixing Bush vs. Clinton Administrations

12. “Aid Chicanery” • Overlap produced only one possible aid package • Simply not the case in a free market • Need-blind admissions? • Airlines vs. Ivy league schools • Why no price wars? • Overlap as a cartel Source: “Ivy League Duplicity”, Eric Neutuch

13. Discussion • Should profit vs. not-for-profit matter when trying firms for Sherman Act violations? • Can social goals justify price-fixing? • Was Overlap illegal? How do YOU feel about such aid packages?