I had a couple of my economics students, Tom Witschey and Ryan Dufinetz, help me conduct a little study recently. We were interested in whether an Ohio University owned convenience store attached to a large dormitory charged more for sundry goods (toothpaste, Ramen noodles, Pepsi, ketchup, condoms, sugar, water bottles, peanut butter, Pop-Tarts, gum and nine other items) that students commonly buy than the town’s two largest grocery store retailers, Wal-Mart and Kroger, as well as a small local grocery, Seaman’s, all located too far from campus for students to walk, as well as a large CVS drugstore outlet conveniently near the campus.
What was the result of this little shopping expedition? We found that on average, the price of the surveyed goods was 40-60% higher at the university store (called Jefferson Market) than at Wal-Mart, and 25-30% higher than at Kroger. Even Seaman’s prices were 20-30% lower than at Jefferson Market. However, the prices at CVS were fairly comparable to those at the university store. Our reading of the evidence: when students are without auto transportation, they are trapped into paying high prices, because the campus area stores have a near monopoly so exploit students.
Interestingly, only one item—condoms—was cheaper at the Jefferson Market than at the competitors, consistent with a frequent refrain on the part of the university’s Division of Student Affairs, urging students to practice safe sex (as opposed to the message generations earlier which was to practice no premarital sex; how times change). The school rips kids off a bit on Pop-Tarts to subsidize condom purchases—for the greater good.
To be sure, Ohio University is primarily in the education business, not a grocery store, and large scale volume does give Wal-Mart and Kroger an advantage. This, however, is at least partially offset by cost advantages Ohio University has, namely the fact that other stores pay substantial property and income taxes, whereas the university does not—in fact it receives subsidies from the state and federal governments financed in large part with tax revenues.
A more comprehensive survey involving perhaps a dozen or more universities would be worthwhile, and I suggest young researchers seek government or private foundation grants. That said, I have traveled to literally scores of colleges and universities in recent years, and often inquire of students about the prices they pay for goods bought in college run convenience stores, sometimes in the student union building, and generally get similar reactions—school prices are higher than those of private commercial providers. Is this exploitation or not?
There is both an economic and moral issue here. The economic issue is that universities have enormous amount of monopoly-like power. Once students enroll at a school, it has a monopoly over the provision of educational services, and often non-educational services as well, such as housing and providing food. Universities often compel students to live in their dorms and eat their food, and even sometimes force them to pay fees to help finance such non-academic activities as ball throwing and kicking contests like football and basketball.
Why doesn’t the Anti-Trust Division of the Department of Justice or the Federal Trade Commission investigate this issue, threatening action against schools and perhaps others abusing this monopoly power, akin to the company stores in early 20th century mining towns? They have on rare occasion done so in the past in the area of admissions, but why not more aggressively? I generally do not believe anti-trust laws are effective, but collegiate monopolies are highly entrenched, often even reinforced by such collegiate controlled support organizations as regional accreditation agencies or, in the case of college athletes, the National Collegiate Athletics Association.
The moral question is why do adults responsible for the intellectual advancement of older children transitioning to adulthood exploit them for financial gain? Colleges have expenses and bills to pay, but they are given special privileges by society (government subsidies, exemption from taxes) because they are performing the important social task of helping young persons become adults and prepare for the world of work. Ripping off students, where it happens, sends a bad message—you can exploit the weak and vulnerable if it is profitable to do so.