The common app used by many senior applying to college might violate the Sherman Antitrust Act

One Reason That the Common App and Standard Oil Are Similar

May 17, 2014 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Government, Labor, Regulation • 378 Views    No Comments

Who would have expected the Sherman Antitrust Act to relate to college applications?

In 1890, the Sherman Antitrust Act was passed because large firms were acting “in restraint of trade.” Supporting Adam Smith, the goal was to control business size so that the market could be the boss. Let supply and demand determine price and quantity. If a firm became big enough to become a controlling price maker, then the law said it had to be downsized.

As a firm that used the power of size to eliminate competition, John D. Rockefeller’s Standard Oil was the typical target of the Sherman Antitrust Act.

John D. Rockefeller's Standard Oil was the typical target of the 1890 Sherman Anti-Trust Act.

From: US Department of State

 

Now, 124 years later, referring to the Sherman Act, a firm is contesting the legality of the common app. As a teacher of seniors, I see the common app all the time.Providing high school seniors with one form, the common app vastly simplifies the college application process. Instead of completing one form for every school, students fill in just one for all of the schools that recognize it.

The results? A proliferation of applications because incentives have changed. One form rather than 6 or 10 or 12 makes a huge difference. The one tradeoff is the cost of multiple applications. Otherwise it has become easier to hedge against rejections by applying to as many schools as possible. The result? More than ever before, I hear that students are applying to 12 and 13 schools instead of 6 or 7.

Because the common app comes from Common Application Inc., one group that is actually an association of colleges and universities, College NET Inc., claims it is a monopoly in violation of the Sherman Antitrust Act. They specifically cite Section 1 of the Act prohibiting conspiracies in restraint of trade and Section 2 that prohibits conspiracies to monopolize.

From the plaintiff’s brief:

“Common Application has orchestrated a sea change in the student application process, turning a once vibrant, diverse and highly competitive market into a straitjacketed ward of uniformity. Prior to the implementation of their anticompetitive agreement, colleges … developed branded applications that marketed their unique attributes and distinguished each college from its competitors…

…Today, that diversity and competition have been virtually eliminated among “elite” colleges, approximately 85% of whom are members of the Common Application. Privately, however, participants acknowledge that the real benefit to member colleges is a 20-40% increase in application volume derived from banding together…

…Common Application and its member colleges’ scheme has severely impeded innovation, reduced product differentiation, increased quality-adjusted prices, restricted output, and otherwise caused harm to competition and consumers, including students…”

Our bottom line? The Sherman Act is a viable tool for preserving the market system. While the courts will judge the applicability of the Sherman Act to the common app, we can explain why we like the monopoly or oppose it. Please let us know in an econlife comment.

Sources and Resources: Bloomberg Law always has an interesting issue they explain during an audio segment and then complement with a written discussion. After they alerted me to the Common App case, I went to the primary source complaint and some Sherman Act info. I recommend all to you for more detail.

Related Posts

« »