So according to this article a large factor in rising tuition costs in American universities is attributable to increases in administration and overhead costs. For example,

Over the past four decades, though, the number of full-time professors or “full-time equivalents”—that is, slots filled by two or more part-time faculty members whose combined hours equal those of a full-timer—increased slightly more than 50 percent. That percentage is comparable to the growth in student enrollments during the same time period. But the number of administrators and administrative staffers employed by those schools increased by an astonishing 85 percent and 240 percent, respectively.

Certainly some of these increases are attributable to the need for more staff supporting new technological infrastructure such as network/computer administration but those needs don't explain the magnitude of the increases seen.

The author also highlights examples of excess and waste in administrative spending such as large pay hikes for top administrators in the face of budget cuts and the creation of pointless committees. How much these incidents contribute to the cost of tuition is somewhat questionable as the evidence is essentially a large list of anecdotes.

Anyway, this was surprising to me because I would naively predict that, if we were talking about almost any other product, we would begin to see less bureaucratically bloated competitors offering it for cheaper and driving the price down. What's unique about university that stops this from happening?

Possible explanations (based on an extremely basic understanding of economics, please correct),

1. The author notes that the boards of trustees tend to be ill-prepared for making the kinds of decisions that might lead to a trimming of the fat. However, for this to be the reason (or at least a large part of the reason) boards would have to be almost universally incompetent else the few universities that take such action would have a market advantage over those that don't.

2. Maybe, for whatever reason, its difficult for universities to grow past a certain point. If the market is already saturated with demand and universities are unable to expand in accommodation then they have no incentive to lower tuition. However, you would still expect lots of new universities to pop up as a result of this (which may or may not be the case as I couldn't find good statistics for this).

3. The situation we find ourselves in appears to fit well with the signaling model of education. That is, college isn't about learning, it's about signaling your worth to potential employers via an expensive piece of paper. If this were the case it would be hard for a new or non-prestigious institution to break into the market or increase their market share even if the actual education was of high quality and inexpensive relative to competitors. In fact, under this model, more expensive schools may be preferred simply because they signal a higher level of prestige.

4. Maybe I have been fooled by a misleading article that overblows the level of waste and inefficiency in American universities and that it would actually be quite difficult to run a modern educational institution without a comparable level of bureaucratic expenditure. There are parts of the article that do strike me as hyperbolic, but I've yet to come across a coherent argument that contends the current tuition levels are necessary and several that posit the opposite.