  We develop a feedback theory that includes reinforcing and balancing feedback
effects that emerge when colleges compete for reputation, applicants, and
tuition revenue. The feedback theory is replicated in a formal duopoly model
consisting of two competing colleges. An independent ranking entity determines
the relative order of the colleges. College applicants choose between the two
colleges based on the rankings and the financial aid offered by the colleges.
Contrary to the conventional wisdom that competition lowers prices and benefits
consumers, our simulations show that competition between academic institutions
for resources and reputation leads to tuition escalation that negatively
affects students and their families. Four of the five scenarios -- rankings, a
capital campaign, facilities improvements, and an excellence campaign --
increase college tuition, institutional debt, and expenditures per student;
only the scenario of ignoring the rankings decreases these measures. By
referring to the feedback structure of academic competition, the article makes
several recommendations for controlling tuition inflation. This article
contributes to the literature on the economics of higher education and
illustrates the value of feedback economics in developing economic theory.
