I said I didn't really have an idea, suggesting that it was possibly some supply/demand calculation. he laughed at me. He said, that his school could triple tuition costs and still fill every freshman seat because demand was so out of wack with supply. People would do anything to get in to the school. They keep it tuition 'artificially low' because they want to appear in high demand and desirable with lots of applications but only a few acceptances.

And it's not like they need the money. tuition, especially there, only served like ~5% of their yearly operating budget. The school's endowment and federal funding through grants and awards were the lion share and that's why they needed their all-star professors: those professors could pull in the money. They didn't care much at all about the freshmen, which is why many of those all-star professors are actually terrible teachers. So how DID they determine tuition they didn't care about?

Simple. They called up their good colleagues and friends at the other ivy league schools and asked what THEY were planning on doing with tuition that year. And that is how tuition is decided.