Preschool Madness

PRESCHOOL MADNESS….The New York Times has the latest entry in what seems like (at least) an annual story: the scramble to get your 3-year-old into a great preschool:

This is the moment of maximum anxiety for parents, many of whom have applied to so-called safety preschools, just hoping their children will be accepted somewhere. And the hot pursuit of slots has continued despite tuition that can run over $10,000 a year for 3-year-olds. Acceptance letters were sent out last Wednesday for private kindergarten programs, to be followed next week by the telltale thick or thin envelopes from the preschools.

There’s something I don’t get here. Top universities are not pure businesses, and thus have various incentives not to simply raise their prices until supply meets demands. But that’s not true of preschools, is it? They just want to make money, right? So why not simply raise their rates and make all the money the traffic can bear? If you have twice or three times as many applicants as you have spots, you’re leaving money on the table.

I guess I can see the possibility that there’s a balance here: having a certain kind of student body makes you exclusive, which in turn allows you to charge lots of money, which in turn means that you have to have lots of applicants in order to make sure you have the kind of student body that allows you charge lots of money. I get that. But we’re talking preschool here, and we’re talking about applicants who are all pretty high up the SES food chain in the first place. Surely setting a price point that produces a mere 50% too many applicants would allow you to create a pretty damn exclusive student body?

Tyler Cowen, please take some guesses about this. It seems like it’s right up your alley.

UPDATE: I’m told that elite Manhattan preschools are mostly nonprofits, and thus don’t charge market clearing prices. This actually inspires three or four more questions about the whole thing, but I’ll restrain myself from asking them. Rich people sure are weird, aren’t they?