Out-of-pocket tuition rates for any two college students can differ by considerable amounts even if the students happen to major in the same subjects and enroll in many of the same courses. This is due to “tuition discounting” in the university world. Colleges and universities offer students diverse financial aid packages depending on their “financial need.”

To document their “financial need,” students must provide detailed information about family income and wealth. The information helps financial aid officers determine which families are most likely to be willing and able to pay, so that the university can engage in price discrimination. Basically, lower-income families are either unwilling or unable to pay a higher price, so they are offered a lower one. As family income rises, universities have discovered that they can then charge higher prices (by offering a smaller financial aid package). Does the educational product supplied by colleges satisfy all three conditions necessary for price discrimination?