In America, bowing to the inevitable, universities have joined various startups in the rush to provide stand-alone instruction online, through massive open online courses, or MOOCs.

Though much experimentation lies ahead, economics can shed light on how the market for higher education may change, reports The Economist.

Alex Tabarrok, an economist at George Mason University and co-founder of an online-education site Marginal Revolution University, reckons the most salient feature of the online course is its rock-bottom marginal cost: teaching additional students is virtually free. The fixed cost of creating an online course is relatively high, however.

Having invested in the production of a course, a provider’s incentive is to sell it to as many students as possible. After the initial cost is covered each additional unit sold is pure profit.

The market for instructors will also be transformed. The best teachers will be fabulously productive, reaching hundreds of thousands of students. There may therefore be far fewer of them, each compensated like superstars in the entertainment industry.

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