The Competitive Effects of Online Education

We study the impact of online degree programs on the market for US higher education. Online degree programs increase the competitiveness of local education markets by providing additional options in areas that previously only had a small number of brick-and-mortar schools. We show that local postsecondary institutions in less competitive markets experienced relative enrollment declines following a regulatory change in 2006 that increased the market entry and enrollment of online institutions. Impacts on enrollment are concentrated among private nonselective institutions, which are online degree programs’ closest competitors. We also find increases in per-student instructional spending among public institutions and a relative shift towards instruction spending among private institutions. Our results suggest that by increasing competitive pressure on local schools, online education can be an important driver of innovation and productivity in US higher education.