Why CollegeBoard is Here to Stay

Why CollegeBoard is Here to Stay It’s a favorite pastime of students, teachers, and anyone who’s taken an SAT to complain about CollegeBoard. Many see large prices*, strict rules, and purported general incompetence as a result of their monopoly over standardized testing. While it’s undeniable that CollegeBoard is a monopoly, it’s difficult to imagine an alternative. College putting out individual placement tests would require duplicate work, from students and administrators. Having multiple test providers creates more work for students, who must choose which to take, tutors, who must expand their curriculum, and college admissions offices, which must convert between test scores to compare students. The standardized test industry will inevitably create an effective monopoly--standardized tests are only useful when they’re truly standard, i.e. there’s only one of them. This fact was built into CollegeBoard’s original mission in 1899: multiple colleges collaborating to create a single set of standards for and measurements of secondary school education. Our class discussions have covered natural monopolies, situations in which the best prices are offered to consumers when only one firm is producing a product, due to the behavior of economies of scale. Most examples, however, focus on the economics of supply. Economies of scale affect the cost of production, and thus the lowest cost that can be offered to consumers. I think of these as “supply-side natural monopolies,” natural monopolies that arise from the economics of supply that then dictate cost. But in the modern era, direct cost is rarely what matters the most. CollegeBoard is the perfect example. Its utility stems not from the prices it offers or even the quality of the product. Its utility is the fact that it’s a monopoly. The more a single standardized testing firm dominates the market, the greater its value proposition to consumers. Imagine each of the 10 colleges I apply to has its own $30 test. The single SAT then provides a $300 value in 1/10 the time, for only $65. If only 80% of colleges accept the test, the value drops to $240. More important than the cost of the product is how many institutions the product can interoperate with. In short, I’ll pay more for a standardized test the greater the number of colleges that accept it. Similarly, colleges will only accept standardized tests that have a large number of students taking them. CollegeBoard’s product becomes better the more ubiquitous it is. This is an instance of demand-side economies of scale, also popularly called “network effects”--the value of a product scaling with the number of people using it. When an industry has large network effects, it leads to a “demand-side natural monopoly.” In the information era, anti-trust discussions are focused mostly on demand-side monopolies. Google’s search engine is miles ahead of others in part because they collect data on the usage patterns of billions of users, and use that information to enhance their product, and the value of Google Ads also derives from this search information. More explicitly, the value of Facebook, Twitter, Instagram, and all social media companies aren’t in the products themselves. An average developer could clone one of these products in about a month. Their value derives from the network they provide consumers and advertisers access to. Even though NoCensorshipTwitterCloneCompany#725 offers the same product as Twitter, without a feed full of tweets to read and potential followers to gather, the product is worthless.

Network effects are part of the reason why tech antitrust is such a challenge. While there are externalities to having a single player in the video hosting industry (Google/Youtube) or giving a company control over politician’s speech (Twitter), splitting these companies up to restore competition destroys the very thing it seeks to protect. In short, complain all you want about CollegeBoard, nothing will change. And if it does, have fun paying for your kid’s 15 college entrance tests.

*if you examine all the work that goes into designing curriculum, designing tests, logistics, and grading, I don’t think the cost of an AP test is outrageous.