Multi-College Agreement Defended in Antitrust Case

NEXT month, the Massachusetts Institute of Technology (MIT) is expected in court.

The Cambridge, Mass., university will be defending itself against United States Department of Justice charges of violating federal antitrust laws.

The charges stem from a nearly 40-year-old practice of cooperation between the eight Ivy League schools, MIT, and 14 other colleges.

Known as the Overlap Group, officials from these institutions met each spring to agree on uniform financial-aid offers to students accepted at more than one school.

The Justice Department launched an investigation into this practice three years ago and concluded that it amounted to improper collusion and price-fixing.

"Students and their families are entitled to the full benefits of price competition when they choose a college," then-Attorney General Dick Thornburgh said about the case. "This collegiate cartel has denied them the right to compare prices and discounts among schools, just as they would in shopping for any other service or commodity."

The Wall Street Journal, which first disclosed the "Ivy cartel" in 1989, recently published an article suggesting that the Overlap Group collusion extended beyond financial-aid packages to cooperation in setting tuition and faculty salaries.

Although admitting no wrongdoing, all the institutions involved, except MIT, settled with the Justice Department last May. Since the settlement, the Overlap Group has been dismantled and the colleges have agreed to discontinue their annual meeting.

But MIT is fighting the Justice Department charges. The university claims that the case is a misapplication of the 1890 Sherman Antitrust Act.

Earlier this month, MIT filed a brief opposing the government's motion for a summary judgment without trial. "Overlap was founded upon commonly held academic values and principles about the role of higher education in society: that education is a `public good' that ... should not be a privilege reserved for the wealthy...," the brief states.

"The elimination of Overlap will, over time, seriously undermine the principles of merit admission and need-based aid," says the brief.

Overlap participants argue that cooperation between universities is necessary to avoid bidding wars in which schools use financial-aid packages as leverage.

"What they're saying, in effect, is that competition here is a bad thing," says Thomas Arthur, associate dean of the law school at Emory University in Atlanta. "That argument has been made in the Sherman Act context for a long time - that is, that you should consider other things besides competitive factors.... But the court has been saying for 80 or 90 years now that you can't suppress competition on the grounds that it's bad for people."

A statistical analysis submitted to the court by MIT makes the case that the Overlap process didn't increase revenues for the colleges. "It therefore did not produce the harm to consumers upon which antitrust liability is predicated," the MIT brief states.

"These are nonprofit institutions in a very complex market," says Scott Masten, a professor at the University of Michigan School of Business Administration, who has studied the case. "You can't analyze them in the same way that you analyze collusion by for-profit firms in standard product markets."

"The difficulty with that [argument] is that so far it has never been bought by the courts," Mr. Arthur says. "Arguably, Overlap is like the president of US Steel and the president of Bethlehem [Steel] getting together and saying, `Look we're killing each other by giving these discounts to General Motors and Ford every time they come see us, and they just bid us against each other. ... If we both agree on what they get, then that will be it. ... They'd go to jail for that. It's a felony."

But Professor Masten says the Overlap practices "may actually enhance the quality of education rather than detract from it.... One of the things you have seen over the last 30 years when these practices are alleged to have taken place is a big increase in program offerings at these schools, the addition of new buildings and state-of-the-art laboratories.... That would be consistent with the idea that any revenue that they did collect has gone into producing more facilities or competition in the quality d imensions."

Arthur acknowledges that the case has a "sympathetic tug."

"Unlike a normal group of price-fixers who are just trying to make themselves better off," he says, "the colleges were probably trying to do the right thing. But the problem is that what the court says is law doesn't seem to leave [the colleges] a lot of leeway.

"If I were a district judge who said, `Look, it's not what I think. It's what the Supreme Court has told me.'... I'd have to say that [the Overlap Group practice] was illegal per se price-fixing," he says.