It's not just price discrimination, but the process of applying and choosing a college is essentially an auction process designed to benefit colleges over students. US colleges all band together to participate in a single coordinated system (FAFSA, college ranking systems, the common app, Early decision rules, etc.) , acting almost like a cartel, so they get away with it. If you view the college application process through the lens of Mechanism Design you can see that colleges hold all the cards and so the entire system is designed to their benefit: https://en.wikipedia.org/wiki/Mechanism_design
What exactly is unfair about the process?
1. The colleges which most heavily implement price discrimination are the most desirable to attend and also tend to accept large portions of their student body through Early Decision applications that don't allow apply to most (not all) of the other most desirable colleges. This means that accepted ED applicants have no recourse beyond either accepting or rejecting the proposed "aid package".
2. Highly desirable colleges aim for high applicant "yield" for rankings/planning, which in aggregate makes it so most of their accepted students only get into one highly desirable college. Even outside of early decision applicants, this puts applicants in a bad bargaining position - they must choose between either paying more for the ~single highly desirable college they got into or less for a less desirable college.
3. You cannot generally bid between colleges even if you got into comparably desirable/expensive desirable colleges (you can't tell Dartmouth and Brown that each is proposing a cost of $40k/y and have them bid against each other). This is because they essentially operate as a cartel. This limits downward pressure on prices.
4. The application process operates in rounds with fixed dates, there aren't really do-overs within a given year, and waiting for the next year changes the process (you're either a transfer or gap year applicant). This puts a lot of pressure on applicants to accept the least-worst option and doesn't give them the ability to react to a bad outcome by eg applying to more places after the fact.
5. The acceptance criteria are opaque and in many cases subjective (eg your application essays). Applicants need to hedge their bets and deal with a lot of uncertainty. Any accepted offer from a highly desirable college then feels like a gift and not worth squandering/negotiating.
6. As you mention, colleges know exactly how well you'll be able to pay, and because they act as a cartel that disallows bidding wars or negotiation + all the other forced scarcity/time pressure I mentioned, they can essentially extract as much from applicants as they want, up to their sticker price.
It's worth mentioning that not all competitive colleges participate in the cartel to the same degree as the Ivy League. When I was applying to colleges, I remember MIT and Caltech had Early Application (not Early Decision) processes, didn't make applying in those rounds as beneficial as ED colleges, and didn't have as many athlete/legacy "backdoors" as the Ivy League.
I also remember that Duke and Vanderbilt offered full merit scholarships to some students who might've received no need-based aid, which I was fortunate enough to benefit from and am extremely grateful for, even if it was probably a self-serving policy to poach applicants away from the Ivy League/improve yield.
The weirdest part in all this is that the people who architect the system are making essentially no money from it. All of extra tuition money just goes to pay random employees. A strange way for greedy provost to use ill gotton gains.
i think it's because it's not designed to have this outcome - it's emergent upon the rules and incentives of the system.
There's advertising/marketing incentive to make the college experience like a resort on campus. There's bureaucracy in administration that just grows because it's in the interest of each department lead to manage more people under themselves (think office politiking).
There's perceived prestige of the students from brand name colleges similar to Veblen good (https://en.wikipedia.org/wiki/Veblen_good) which makes charging more acceptable.
Beautiful reply. #3 can be pushed by aggressive negotiators, but requires "like for like" schools to make a mistake. Then you can leverage one school to ask for more money from another.
What exactly is unfair about the process?
1. The colleges which most heavily implement price discrimination are the most desirable to attend and also tend to accept large portions of their student body through Early Decision applications that don't allow apply to most (not all) of the other most desirable colleges. This means that accepted ED applicants have no recourse beyond either accepting or rejecting the proposed "aid package".
2. Highly desirable colleges aim for high applicant "yield" for rankings/planning, which in aggregate makes it so most of their accepted students only get into one highly desirable college. Even outside of early decision applicants, this puts applicants in a bad bargaining position - they must choose between either paying more for the ~single highly desirable college they got into or less for a less desirable college.
3. You cannot generally bid between colleges even if you got into comparably desirable/expensive desirable colleges (you can't tell Dartmouth and Brown that each is proposing a cost of $40k/y and have them bid against each other). This is because they essentially operate as a cartel. This limits downward pressure on prices.
4. The application process operates in rounds with fixed dates, there aren't really do-overs within a given year, and waiting for the next year changes the process (you're either a transfer or gap year applicant). This puts a lot of pressure on applicants to accept the least-worst option and doesn't give them the ability to react to a bad outcome by eg applying to more places after the fact.
5. The acceptance criteria are opaque and in many cases subjective (eg your application essays). Applicants need to hedge their bets and deal with a lot of uncertainty. Any accepted offer from a highly desirable college then feels like a gift and not worth squandering/negotiating.
6. As you mention, colleges know exactly how well you'll be able to pay, and because they act as a cartel that disallows bidding wars or negotiation + all the other forced scarcity/time pressure I mentioned, they can essentially extract as much from applicants as they want, up to their sticker price.
It's worth mentioning that not all competitive colleges participate in the cartel to the same degree as the Ivy League. When I was applying to colleges, I remember MIT and Caltech had Early Application (not Early Decision) processes, didn't make applying in those rounds as beneficial as ED colleges, and didn't have as many athlete/legacy "backdoors" as the Ivy League.
I also remember that Duke and Vanderbilt offered full merit scholarships to some students who might've received no need-based aid, which I was fortunate enough to benefit from and am extremely grateful for, even if it was probably a self-serving policy to poach applicants away from the Ivy League/improve yield.