1. An Exploration of the Microeconomic Structure of the Academic Research Market: Perfect Competition Jeffrey Litwin May 30, 2007 CSSHE, Saskatoon

2. The Market in the United States Federally financed R & D at colleges and universities $30.0 billion in 2005 –vital to Higher Education and economy Intensely competitive Yet, structure is unexplored 1

3. Microeconomics Not Perfectly Competitive –versus Monopoly, Oligopoly, Monopolistic Competition If not –system level accountability –informing institutional strategic process 2

4. Differentiation Strategy Competitors can increase their market share by attracting high performing researchers Perfect Competition: product is undifferentiated 3

5. Perfect Competition 4a

6. Perfect Competition 4a P MR P=MR Overcapacity

7. Average Cost in the research market y = 1/x Lowest Average Costs 5a MC AC

8. Increasing Marginal Cost No Equilibrium 5c y = -1/x 2

9. Declining Marginal Revenue 5d

10. Profit is Possible

11. Evidence of Profit Ohio State had 2,991 FTE faculty –research performed per faculty was $184,000 –wage rates: $108000, $72000, and $60000 U of Arizona had 1613 FTE faculty –research performed per FTE faculty was $242,000 –wage rates: $95000, $67000, and $60000

12. Evidence of Profit Signs of Profit –variable gross profit –economies of scale There can be no profit in perfect competition

13. Conclusion This market is not perfectly competitive Differentiation strategy Barriers to exit Not at the lowest Average Cost Profits