When: Mon, January 22, 12:00pm – 1:30pm

Where: 107 SH-DH (map)

Speaker: Natalie Bau

School Competition and Product Differentiation

ABSTRACT: This paper explores how market structure affects private schools' choices of qualityin response to competition when quality has a match-specific component. I develop and estimate an equilibrium model of school competition in Pakistan, a country with a large private schooling market. The estimates show that match-specific quality matters:moving a student from her worst to best possible match school increases test scores by 0.3 s.d. Prot-maximizing private schools choose their match-specific quality in response to the marginal rather than the average student. Since rich students are more responsive to quality when they make enrollment decisions, the average private school chooses a match-specific quality that advantages rich students at the expense of poor students. From the point of view of maximizing learning, match-specific quality is significantly misallocated. The entry of an additional private school exacerbates the incentive to cater to wealthy students, increasing inequality within private schools by 0.1 s.d.