<p>Interesteddad, your points are an excellent starting point. But I'd take it a step further and keep in mind that colleges are also looking at their bottomline. That means, in some cases, that colleges would rather give a discount (merit scholarship) to a student who can pay full freight, or close to it, than to a student who can only pay $10,000, regardless of whether one student is all that much more qualified than the other. </p>
<p>Going back to your airline scenario: empty seats cost money. You want to fill them and are willing to use discounting to do so. But you'd much rather discount 10% than 50% because you'll earn more/lose less with the customer you can get for 10% than the customer you need to entice with a 50% discount. </p>
<p>Colleges have lots of ways of identifying who's a 10% discounter and who's a 50% discounter - zip code analysis, demonstrated interest, whether the student is applying for financial aid, even, in some cases, that applicant with lower stats who probably doesn't have as many options as the one with higher stats. Again, it all goes back to simple economics and price elasticity.</p>