The subtle economics of why the Uni SA and University of Adelaide merger won’t serve students

The merger will create one of Australia’s largest tertiary institutions but the case for it has been based on a secret internal report.

Economists think about the problem of how big something should be in terms of economies and diseconomies of scale. To justify an industry becoming more Concentrated there should be some evident economies of scale. And so, it is with the new super uni merger.

Economies of scale means a good will become better or cheaper if it’s produced in larger quantities, for example Tesla wants the largest production runs possible for its cars, while diseconomies of scale would apply to a bespoke tailer whose suits are individually customized.

The merger to create Adelaide University will almost certainly go ahead after legislation was passed by state parliament in October of last year. The new institution to be named Adelaide University is expected to officially open in January of 2026.

The case for the merger hinged on an internal business case developed by the unis. Incredibly this was never made public and neither the parliamentary committee which examined the merger nor the Premier ever read it. We don’t even know which consultancy was hired to produce the business case. The 28 page summary of the business case claims the merger ‘might’ generate an additional 500 million for the South Australian economy by 2034 but no quantification was provided as to how likely these benefits are to materialize or what the downsides might be.

The new institution is expected to have a higher percentage of international students and more research revenue than its combined predecessors. Less advertising dollars will be spent on maintaining domestic market share and more on lifting the international profile of Adelaide University. Better online services delivery will hopefully lead to more online students.

All of this will come at a cost of 500 to 600 million dollars of university cash reserves. The state government will set up a 120 million perpetual funds to support low SES student access and another 200 million fund for research.

The Australian university system is already highly optimised for recruiting international students. International students do bring benefits especially to South Australia’s economy, but most of the criticisms of our university system go to the orthogonal issue that university management is not laser focused on the basic function of higher education — high quality teaching.

To see the downsides of the merger, the diseconomies of scale we need to understand how Universities achieve their purpose of building up the skills of students.

The way universities do this depends on assortment, matching up the right students to the specific educational experience that suits them best. A collegiate environment, networking opportunities and industry links are part of the overall university package. This explains why smaller universities catering to niches, such as Divinity University, Bond University and Edith Cowen University do the best on student satisfaction and other quality metrics. The abysmal performance of Australia’s most prestigious universities Melbourne and Sydney which are also larger shows the downsides of education as a one size fits all product.

An industry that epitomises the fascinating conflict between economies and diseconomies of scale is car manufacturing. Consider that Germany and Japan both import and export cars from each other. Given the huge advantages of scale in a manufacturing industry how does this make any sense?

The answer is brand differentiation.

Toyota makes the most reliable cars, Nissan the cheapest to run, Mercedes Benz the most luxurious. With unlimited time Consumers could research each individual model to find their dream car but defaulting to brand reputation is an easier way to accomplish much the same thing.

Brands streamline the process of assortment by communicating highly complex information.

To anyone taking a short walk through the Adelaide CBD in recent years it was clear an intense brand competition was at play.

University of South Australia is known for its Industry links and student employment outcomes. Do you feel confident that without the competition with The University of Adelaide university leadership will still hustle just as hard to cultivate these vital industry links?

Whilst Uni SA is snobbishly derided as ‘supertafe’ by University of Adelaide students the reality is many high performing students choose it over Adelaide. This competitive pressure has helped make Adelaide successful as a research focused university with much higher student satisfaction ratings then its peers.

The risk is we replace two institutions that each have a clear identity with one lumbering behemoth.

Until now the intense competition between the two unis has given leadership clear metrics of success to focus on and would be students’ clear messages about what they can expect as they make one of the most complex decisions of their lives. I fear this will no longer be the case after the two unis are merged to create one super institution.

I hope I’m wrong but if not the quality of education at the new Adelaide University will slowly decline. Perhaps South Australia’s smaller educational institutions will be the long-term beneficiaries of the merger.