In the world of business, there are many examples of bundles.
The cable company sells a bundle that includes TV and Internet. It used to include all of the content, such as movie channels.
Streaming services might bundle sports with other forms of entertainment, such as gaming.
Microsoft Windows(tm) is a large bundle of software applications. In the 1990s, when Microsoft first included a web browser in the bundle, this caused an antitrust controversy.
A hospital stay is a bundle of services. It includes doctor visits, nursing care, meals, lodging, sanitation, etc.
Bundling is widespread because of what I call The Overhead Revolution. When there is a lot of fixed cost to recover, the business can increase its customer base through bundling. Both the sports customers and the gaming customers contribute to covering the overhead of the streaming service.
The College Bundle
Too often, economists treat college as if it provides only one good: skills and a credential that enable one to get a high-paying job. But in fact college provides a bundle of goods. It provides a social setting, recreation, sporting events, connections, and intangible benefits. One intangible benefit is helping you “find yourself,” or delay adulthood.
Another important intangible benefit of college is status. A roofer or air conditioning repairman probably earns higher pay than many college graduates, but that does not translate into the roofer getting into upper-class social circles.
Colleges have a lot of overhead costs. The “marginal” cost of an additional student is close to zero, so that you can sneak onto campus and attend all the courses you want without paying. The college recovers its overhead costs by charging for the bundle.
Some students go primarily for the social life. Others go primarily for the “education,” meaning the knowledge and skills they acquire. Others go primarily for the status. But every tuition-paying student helps to defray overhead costs.
Because college is a bundle, it does not have to be excellent at providing any of its benefits. In particular, it does not have to be an excellent source of education. Looking at the trends toward high-end fitness centers, dining facilities, and concert halls, it seems to me that colleges have found that the margins on which they need to compete to attract students have little to do with education.
So you want to launch a radical alternative to college, you cannot compete simply by coming up with a better way of providing education. You have to cover your fixed costs. As long as students find the bundle that college offers valuable, they will go to college instead of getting your superior form of education. So your business will fail.
One element of the college bundle is parents’ status. I think that parents get large intangible status benefits from having their children go to college. In affluent circles, parents want their children to get into elite colleges, to the point where they will spend money in all sorts of ways to try to game the system of elite college admissions.
Many of us believe that there are better ways of providing education than what one finds at colleges. But it is very hard to unbundle education from the other elements of college. The value that colleges provide for parents’ status, in particular, is very entrenched and difficult to overcome.
I think you have a very good point, but are missing one point about bundles. Although people may value many aspects of a bundle more than zero, if one particular aspect of the bundle is the majority of the value offering only that part for a large discount is very effective competition.
Consider the case of airlines, especially at the transition from fixed line fares to free competition on fares. Previous to the change we saw lots of in flight meals and amenities, pretty stewardesses, all manner of things thrown into the bundle to try and draw passengers. Once the fixed price went away, almost every part of the bundle fell away from "fly me from A to B quickly and safely," even though people surely valued parts of the bundle more than zero. It gets to the point now where the airlines that cut everything to the bone to offer a slightly cheaper price do quite well for themselves. The part you can't cut out of an airline bundle is air travel.
I believe colleges and universities are more similar to airlines in this case. If one were to pluck the education part out entirely, the bundle disappears because no one wanted just those parts. The tricky bit seems to be that measuring the education part is very difficult. In a plane I know if I got from A to B quickly and safely, assuming I got there safely enough to know anything afterwards. In higher ed it is very difficult to measure whether any education actually happened, how much, and of what quality. It takes a long time for people to realize that a school no longer educates much, or that a department has stopped. Most of the value is the diploma itself and the school's name on it. Given that, the rest of the bundle matters because it is the margin one can compete on short term.
Yet if a college could show that their graduates really were a half standard deviation above other schools, they very quickly could get market share even if they cut away a lot of the bundle. The airline simile would be if Delta had a mere 95% successful flight rate while Spirit had 99.9%, Delta could offer all the amenities in the world and few would fly with them. But if it wasn't obvious whose planes stay in one piece during flight then the rest of the bundle matters more.
The Moat around the Ivy+ is status, what cannot be recreated in less than a few years.
That’s why using govt tax exemptions, student loans, and research to reform the Ivies is crucial, and can’t really be done in any burn it down way.
The most important reform is to force more colleges to have more Republicans as Trustees & professors. So putting 30% quota requirement would be a huge reform, without any big status reduction. In a few years of more free speech with viewpoint diversity, there might even be a status increase.
Current govt support for colleges that discriminate, either honestly or dishonestly, against Reps should end. Immediately.
Harvard, that huge hedge fund with a famous college attached, should be paying its fair share of taxes, like other profit making orgs. And getting far less govt support as long as it has almost no Rep professors.