Can a Funding Council be a Proxy for Price Competition in a Competitive Market?

In this short discussion paper the question of whether a buffer organization can be a proxy for a competitive market is addressed in the context of the replacement of the University Grants Committee in April 1989 by the Universities Funding Council, the abandonment in November 1990 of its competitive price bidding exercise for funded student places and subsequent developments in the United Kingdom. It is concluded that a buffer organization cannot be a proxy for a competitive market, and that funding councils are more appropriate bodies when a government wishes to establish vertical quasi-integration. Competition for Funding Council-funded student places should be student demand, course quality, and institutional mission and efficiency led not through competitive price bidding.