University Competition and Transnational Education: The Choice of Branch Campus

We present a theoretical framework in which an elitist and a non- elitist university in a developed country compete by choosing their admission standards and deciding whether or not to open a branch campus in a developing country. Students from a developing country attend university either if a branch campus is opened or if they can afford to move to the developed country. We characterise the equi- libria by focussing on the relationship between the investment costs of a branch campus and the graduate wage. There are three type of equilibria: (i) no branch campus, (ii) only the elitist university opens a branch campus and (iii) both universities engage in transnational education, opening a branch campus. Very high investment costs dis- courage the opening of a branch campus. A rise in the graduate wage increases the incentive for opening a branch campus, although this incentive is stronger for the elitist than the non-elitist university. Sur- prisingly, a government subsidy for opening a branch campus may be ineffective in increasing university attendance.