Competition between state universities

We analyse how state university competition to collect resources may affect both research and the quality of teaching. By considering a set-up where two state universities behave strategically, we model their interaction with potential students as a sequential noncooperative game. We show that different types of equilibrium may arise, depending on the mix of research and teaching supplied by each university, and the mix of low- and high-ability students attending each university. The most efficient equilibrium results in the creation of an élite institution attended only by high-ability students who enjoy a higher teaching quality but pay higher tuition fees.