Competing in the Higher Education Market: Empirical Evidence for Economies of Scale and Scope in German Higher Education Institutions

Abstract

Since the late 1990s, the European higher education system has had to face deep structural changes. With the public authorities seeking to create an environment of quasi-markets in the higher education sector, the increased competition induced by recent reforms has pushed all publicly financed higher education institutions to use their resources more efficiently. Higher education institutions increasingly now aim at differentiating themselves from their competitors in terms of the range of outputs they produce. Assuming that different market positioning strategies will have different effects on the performance of higher education institutions, this paper explores the existence of economies of scale and scope in the German higher education sector. Using an input-oriented distance function approach, we estimate the economies of scale and scope and the technical efficiency for 154 German higher education institutions from 2001 through 2007. Our results suggest that comprehensive universities should indeed orientate their activities to the concept of a full-university that combines teaching and research activities across a broad range of subjects. In contrast, praxis-oriented small and medium-sized universities of applied sciences should specialise in the teaching and research activities they conduct.

The Dynamics of Productivity in the Swiss and German University Sector: A Non-Parametric Analysis that Accounts for Heterogeneous Production

“…This result is broadly in line with existing studies on the Swiss and German higher education sector (e.g. Filippini and Lepori, 2007;Olivares and Wetzel, 2011;Johnes and Schwarzenberger, 2011). The deregulation processes have led to positive changes in scale efficiency, meaning that universities have adapted their production processes, so they are more closely aligned to their optimal size of operation.…”

“…In particular, institutional diversity is assumed to increase the overall performance of the whole higher education system (German Council of Science and Humanities, 2010), as HEIs might differentiate according to their strengths and their institutional missions (Olivares and Wetzel, 2011). Opposed to the situation in the past, HEIs can now make strategic decisions on their study programmes in terms of design, curricula, target groups (e.g.…”

“…In other words, efficient HEIs must be large enough in terms of student numbers and research activities to ensure full utilisation of their assets and infrastructure entities like class and computer rooms or libraries and laboratories equipped with machinery and other techniques. Recent empirical evidence on scale effects in higher education, among them Filippini and Lepori (2007) for Switzerland and Olivares and Wetzel (2011) and Johnes and Schwarzenberger (2011) for Germany, indicates the existence of economies of scale.…”

Persistent inefficiency in the higher education sector: evidence from Germany

“…The finds of Johnes and Schwarzenberger (2011) suggest that heterogeneity in fixed costs and in research surroundings accounts for interinstitutional differences in cost structures. The most recent analysis by Olivares and Wetzel (2014) particularly focused on the economies of scale and scope of the institutions. Like the other studies mentioned, the authors do not separate efficiency into a short and long term.…”

“…9 Alternative to the amount of students the number of graduates can be used in the estimation. We follow the argumentation from Olivares and Wetzel (2014) and reason that students are the cost drivers and increase their human capital already before completing their degree. 10 Ph.D. Students are not implemented as an output variable to avoid bias from double counting.…”