Price sensitivity

"Our consumers are not very price sensitive." I've heard that sentiment repeatedly during the last year, as colleagues across the nation respond to criticisms of law school tuition. Some offer the comment apologetically, their tone suggesting that applicants' eagerness for legal education compels our prices. If students are going to put that much money on the table, doesn't someone have to take it?

Others are more pragmatic. They note that some schools will continue to raise tuition, so their institution must do the same to keep up in the U.S. News rankings. Money helps with so many of those ranking factors.

And some are a bit more aggressive. Legal education is valuable, they argue, and many lawyers earn high salaries. We in the academy shouldn't undervalue ourselves. What's more, as long as students flock to our schools, tuition prices must be reasonably aligned with value.

Whatever the tone, these sentiments are enough to turn me into an angry young man (although I have trouble with those last two characteristics). Let's consider what's wrong with the "price insensitivity" position.

First, although I support some aspects of the university-as-business model, our students are not one-time purchasers of iPads, running shoes, or microwaves. They are people who will spend three years working with us to earn a professional degree. At least in theory, we will share professional knowledge and values with them. And at the end of three years, we will welcome them as colleagues in the professional community of lawyers. Surely this is a different relationship than the one between a cashier and customer at BestBuy.

Second, markets properly set value only when those markets are free. DCM figured that out after reading a single economics text! The market for legal education is not free; it suffers from two massive distortions. Government-backed student loans allow law schools to increase prices with very little pushback. And law schools are gatekeepers to a gated profession. In most states, people who want to be lawyers must pay for three years of our tuition; that gives us tremendous market power.

I wonder, in fact, how much of the tuition collected by law schools represents monopoly rents from the guild restrictions of the legal profession itself. To practice law, individuals must surmount significant barriers to entry: They must complete a four-year college degree, score decently on the LSAT, attend (and pay for) law school, and pass the bar examination (which often entails paying still more tuition for a bar review course). Increasingly, these individuals must also take a series of low-paying or volunteer positions to obtain practical experience and establish their credibility as lawyers.

This is an expensive, time-consuming, intellectually challenging, and emotionally stressful path. And, as we know, it's also a risky one. Even many of the survivors will fail to find legal jobs. Yet there are still many people, for whatever reason, who want to be lawyers. For those people, law school represents the single largest--and by far most expensive--barrier to entry. Potential lawyers don't get to choose their pipers: They must dance to our tune at whatever price we charge.

How did we end up in such an economically powerful position? Legislatures have granted lawyers the exclusive right to practice law, and state supreme courts have given accredited law schools the exclusive right to train lawyers. Those rights are supposed to come with a responsibility: to act in the best interests of clients. We are all, whether we practice law or teach it in the classroom, supposed to be maintaining a legal system that benefits clients. That's the only justification we have for abandoning the rigors of free market competition.

That's why I get so irritated by references to students' "price insensitivity." Law schools are triply shielded from the free market: first by rules that restrict law practice to licensed lawyers; second by bar admission regulations that require applicants to graduate from accredited law schools; and third by self-designed accreditation standards. When we take advantage of these restrictions to escalate tuition far beyond inflation, we're not just stifling our graduates with debt; we're abandoning our professional responsibilities.

If you have a fetish for footnotes, DCM and I published a more academic version of these ideas last year.

DCM comments: Some of you are probably saying, "What? Restricted profession? Too many barriers to entry? The problem is too many lawyers and too few jobs!" You're right, and I've made sure DJM gets that (lots of my good friends are just-graduating law students). But coming shortly - more on how the guild system hurts new lawyers, and is at the center of the "law school scam."