Review of Industrial Organization 17: 267–276, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
A Time Series Analysis of Private College Closures
LAURIE J. BATES
Economics Department, Bryant College, Smithﬁeld, RI 02917-1285, U.S.A.
REXFORD E. SANTERRE
Economics Department, Bentley College, Waltham, MA 02452-4705, U.S.A.
Abstract. This study examines and explains private four-year college closures and mergers in the
United States using time series data at the national level for the period 1960 to 1994. The data imply
that, except during the 1970s, private colleges were much less likely to close than businesses in
general. Furthermore, the data indicate that private college mergers occur more often than casual
empiricism suggests. Multiple regression analysis of the exit and merger decision reveals that private
college closures and mergers are more likely when the real tuition rate declines and real faculty
salaries rise at private colleges. Both the closure and merger rates are found to be highly responsive
with respect to changes in private tuition and faculty salaries. The empirical results further indicate
that religiously-afﬁliated colleges are less likely to close and merge than secular institutions and that
a larger student pool leads to less closing and merging of private four-year colleges.
Key words: College closures, college mergers, economics of education, higher education.
Higher education is certainly one of the more vibrant and visible industries in
the United States today. According to the U.S. Department of Education (1996),
enrollment in U.S. colleges and universities topped 14 million in 1996. For the
academic year 1995, total expenditures of colleges and universities in the United
States amounted to over $211 billion or almost 3 percent of gross domestic product.
From an employment perspective, the higher education industry also plays an im-
portant role. For instance, employment in colleges and universities equaled 2.8
million, or about 2.2 percent of the U.S. labor force in 1995 (U.S. Bureau of the
Given the high visibility of the industry and the fact that total charges at four-
year colleges averaged more than $17 thousand in 1995 (U.S. Department of Edu-
cation, 1996), it is surprising that research on the higher education industry pales in
We thank Charles Stokes and the editor and an anonymous referee of this journal for their
helpful comments on earlier drafts of this paper.