Abstract: This thesis proposes analyzing Chilean university education with a group of models, in the context of the literature on vertical differentiation, where the quality produced entails fixed endogenous costs. These models explain the quality and price equilibrium observed in Chilean university education, which are summarized in a series of stylized facts. Furthermore, merit-based scholarships are modeled as a form of price discrimination by externality engaged by selective universities.
One of the first contributions that this thesis will make is the elaboration of a series of stylized facts for the sector of new private universities. It is argued that the strong differences in quality among these universities stem from their competition for students on different margins. The margin where the significant competition occurs determines the university’s selectivity. For its part, selectivity is associated with other quality inputs being financed with fixed costs and with price characteristics. Selective new universities are the ones with the greatest price dispersion, due to the merit-based scholarships that they offer. These scholarships exist because, given the
technology they use, high-quality new universities need to attract good students who have the option of studying in the traditional sector. In this context, they compete for the good students on an intensive margin. In contrast, base-quality universities offer a relatively low single price and compete for students on the extensive margin.
The second contribution that this thesis will make is to apply a vertical differentiation model with endogenous fixed costs to predict the direct and indirect effects that certain public policies have on the qualities and prices of universities that have been differentiated vertically, using a static comparative analysis. This analysis allows one to identify the transmission channels between prices and qualities that might result in the policies producing non-obvious effects. In addition, it is general enough to allow its application to other sectors where quality also depends on endogenous fixed costs (Sutton, 1991) .
The third and final contribution of this thesis is the results produced by applying this vertical differentiation model, but using a technology that is inherent among selective universities. Competition for good students occurs on the intensive margin. In this version of the model, the production technology is of the Rothschild and White (1995)  type, in which students are both the demand and the input for the quality produced. This application with peer effects allows one to explain the structure of prices differentiated according to academic merit that can be observedin the data from selective universities.