When quality is hard to assess we use price as an indicator of quality

With this in mind, in early 2000 the board of trustees of Ursinus College adopted a proposal designed to increase applications that at first might seem counterintuitive: The board raised tuition nearly 20 percent. The policy flew in the face of conventional economic theory, by which a drop in price is the surest way to increased demand. Unconventional or not, it worked: Applications soared. The strategy has been employed with equal success by a number of other colleges, including Bryn Mawr, Notre Dame, and Rice.

Although it is not what standard economic theory would recommend, it’s easy to see why raising tuition would increase the number of applicants. Parents want to send their kids to high-quality, prestigious schools. But academic quality and prestige are hard to assess, and so they use price as an indicator of quality. If it costs a lot, they tell themselves, it must be good.