Microeconomic approach to university online course pricing decisions

In the last thirty years the U.S. economy has transitioned from a manufacturing-based economy to a more service oriented economy.  Education has become critical for workers who wish to qualify for jobs which pay a living wage.  Therefore, the demand for college degrees has increased systematically.  The capacity of colleges and universities to deliver traditional class-room based instruction has not kept pace with the increased demand for education. The result is that innovation and experimentation in the delivery of economics courses in colleges and universities have included online delivery mechanisms. The availability of various course management software and improvement in the technology for taping and posting the audio as well as the videos has made it possible for the online courses to be widely adopted.  This paper is focused on examining one of these innovative methods of the delivery of courses to help meet this increased demand.  The authors develop a theoretical model to explain pricing decisions for online courses by the administration in colleges and universities.  Equations describe the University’s revenue maximizing behavior for online and face-to-face courses. (the supply-side of the market for education).  On the demand-side for college courses, equations describe students’ preferences for online and face-to-face classes.  This system of equations has equilibrium conditions which permit the identification of market clearing offerings for online courses.  The theoretical model will be estimated using data from select colleges and universities in the State of Indiana.  It is anticipated that the data will show that online courses are priced at a premium to face-to-face courses in the examined Indiana institutions of higher education.  From these results policy implications and directions for future research will be drawn.