Monopolistic Competition and the University Industry the Determinants of University Choice by Students and the Choice of University Location

Abstract

This study applies the state of the Japanese university industry to a theoretical model of monopolistic competition. Using a model of spatial economics, it is possible to identify how and why an increasingly competitive university environment leads to university agglomeration and dispersion. The study analyses whether the location of universities will be less unevenly distributed in cities and whether the number of universities and students in rural areas will increase. Using a model of spatial economics, the study analyses two aspects: the demand aspect of the choice of universities by students and the supply aspect of location by universities. A decrease in the number of students per university results in a decrease in the quality of education through a decrease in university income. The results of this study can also explain the impact on the quality of education. The analysis leads to the following conclusions. The higher the cost of inter-regional travel during the job search, the fewer students are willing to move from one region to another to find a job, and the lower the number of students enrolled. When the substitutability between university varieties is weak, the number of universities increases because prospective students need more variety, and the number of students per university decreases. When fixed inputs are low, e.g. when the fixed costs of a university are low due to online etc., the number of universities increases because it is easier to establish new universities and the number of students and graduates per university decreases. In a model that assumes two types of students within the same university who want to work in their region or another region, there will be more students who move between regions. The location of universities is determined by the balance between market size and the level of competition. As people move from one region to another in the course of their job search, there will be competitors in the other region, and the effect of new competition will be weaker in regions with more universities than in regions with fewer universities. Thus, regions with more universities will have a larger market relative to the level of competition, and more universities than their share of the population will be located there. Even in a model with two regions, one with universities in higher education and the other with homogeneous goods in non-university production, the region with the largest population has a larger share of university enrolments than its share of the population. This means that even if the two regions have the same level of technology and resources, they will experience a reduction in enrolment simply because of their small population size. Smaller universities in rural areas mean that a negative spiral of declining enrolments will occur.