UNIVERSITIES have not changed much since students first gathered in Oxford and Bologna in the 11th century. Teaching has been constrained by technology. Until recently a student needed to be in a lecture hall to hear the professor or around a table to debate with fellow students. Innovation is eliminating those constraints, however, and bringing sweeping change to higher education.
Online learning takes many forms. Wikipedia, a user-generated online encyclopedia, contains wonderfully detailed explanations. YouTube offers instruction on how to boil an egg as well as lectures on cosmology. Within many universities the online is displacing the offline. Professors publish course materials and videos of their lectures on the web. Students interact with each other and submit assignments by e-mail. Even those living on university campuses may nonetheless learn largely online, skipping lectures and reporting only for the final exam.
In America, bowing to the inevitable, universities have joined various startups in the rush to provide stand-alone instruction online, through Massive Open Online Courses, or MOOCs. Though much experimentation lies ahead, economics can shed light on how the market for higher education may change.
Two big forces underpin a university’s costs. The first is the need for physical proximity. Adding students is expensive–they require more buildings and instructors–and so a university’s marginal cost of production is high. That means that even in a competitive market, where price converges towards marginal cost, modern education is dear.