While engineering courses and medical sciences continue to hog the fancy of students in India, law has silently crept in as a strong third option for a professional career. Over the past two decades, the National Law Schools have sought to bring in a qualitative change in legal education and while their number is limited, they have spawned many private law schools, hence increasing supply.
In undertaking market analysis, a definition of the relevant product and geographic market is important. What do students consider as substitutes? A wider market definition would incorporate all professional courses as students are likely to keep preferences ranked in accordance with what would give them the most satisfaction. The ranking of preferences in this manner is an inevitable outcome of the fact that the outcomes are probabilistic. NEET and JEE exams offer a probability of 0.2 for the general category students which means that a vast majority have to keep their preferences open. Post ranking their preferences, an understanding of constraints- cognitive capacity, affordability, and others will have to be considered to arrive at a final choice that will decide which entrance exams to prepare for. The final list may consist of courses that bear little relationship by means of the skills required. An interpretation of this nature would keep the market definition wide, but an inevitable outcome of supply-side constraints. A narrower definition would, however, include only NLU's and competing private law schools. A good way to define this market would be to survey a sample student set to uncover the various entrance exams they chose to prepare for.The Geographic market could be restricted to India. Although there is a small percentage that choose to do their postgraduate studies outside, these numbers are much lower for undergraduate LLB courses. Given that the price is much higher and the content of the course also varies from what is prescribed by the Bar Council of India (BCI),which is a factor if one wants to practice in India, we can safely exclude other countries from the geographic market definition. Of course, some do complete their undergraduation in UK and qualify for practicing in India by virtue of a 'bridge course', approved by the BCI, but then this is at an additional cost.
The below table provides data related to NLU's (disclaimer - the author is not responsible for any inaccuracies that may have crept in and the fees are a conservative, lower level, indication and may not be related to any particular institution). The data includes both LLB and LLM applicants.The number of aspirants has increased nearly seven-fold over the past fourteen years. Supply, however, has been more modest in its increase.
But naturally, a competitive SS-DD market analysis cannot be undertaken for this market. Some observations - historically NLSIU (Bengaluru) has attracted a vast majority of first preferences and continues to do so although to a reduced extent and CLAT ranks are used by some other private law schools for their own admissions. So how would the short-run SS be shaped? How would the long-run SS curve react? Is it based on the cost of education? Do we even have a supply curve? Further what factors explain the demand pattern? The sharp increase between 2018 and 2019 is particularly intriguing.
8 comments:
Hi, Malhar Satav (LLB/2814/21)here!
I would like to answer the questions in the order originally asked in LMS Portal.
Q1. What variables would you use to explain this data and how would you represent the same on a diagram?
A1. At the very outset, I would like to thank Prof. Somashekhar for prescribing such an intellectually stimulating exercise! Even a cursory glance upon the data provided and collated gives one a broad hint as to the nature of intervening variables at play at the functions of demand other than price.
Had demand solely been a function of price(read NLS fees), then there is a high possibility that demand would have, at least by some measure, decreased with the significant increase in Tuition Fees(Price).
Although, this did not happen. Rather, the result is quite an opposite phenomenon.
Thus, should we take NLS fees(Price) on the Y axis, and the Quantity Demanded(Preference for NLS) on the X axis, we observe a Relatively Elastic Demand Curve, where Ed>1.
Hence, on the basis of the aforementioned observations, we can deduce the potential variables other than price at play here.
a) Exponential Rise in the Popularity of Quality Legal Education (Career Scope)
b) A reiteration of the 'historic first priority' to NLS by CLAT aspirants (Preference)
c) An increase in the quality and relevance of legal education provided by NLS (Institutional Improvements)
d)Increased Awareness about Law as a robust and promising profession
e) A nation-wide response by coaching centers to the aforementioned increase in awareness(Increase in Access to Preliminary Legal Awareness and Prep- Increase in Probability of getting into the dream NLU).
Q2)How would you draw a supply curve accounting for both the number of NLU's and the increasing fees charged by them over the years?
A2) The Relationship between the Number of NLU's (X axis) and the CLAT fee(Y axis) if quite an interesting one to analyze, given the fact that there is definitely an rise in the CLAT fee as the Number of NLU's increase, however the former is not proportional to the latter.
The reason for this phenomenon could be that, although the Rise in Number of NLU's(Response to Increased Demand) serves as an imperative to increase the CLAT fees(logistical requirements to cater to increased applicants)- this can only happen upto a certain limit.
Now, a pertinent question could arise as to the rationale of the limit, the response to which would be quite simple, that being- A further rise in CLAT fees(to cater to logistics and a rational economic response to increased demand)- could herald a counter-productive impact insofar as it being unaffordable to potential CLAT aspirants. Thus, this could, as explained, would essentially abnegate the very purpose of such a large-scale exam to the exclusion of many.
Q3) Since the fees are fixed can you show an equilibrium price in the diagram?
A3. Upon perusing the CLAT data closely, the underlying economic principles underlying the graph of Fees(Y axis) and Applicants(Demand, X axis)- have led me to a proposition positing the implausibility of a perfect equilibrium being observed, the reason is as follows-
There is a considerable gap between the Demand(Applicants) and Supply(NLU seats), which would essentially push CLAT fees up to an exorbitant amount- which by itself is implausible given the reasons as to the cap in fees in the previous answer.
Q4)How would you describe the relevant product/service and geographic market?
A4. An increase in the quality of a promising legal education is essentially the function of a potent market(society) which puts a premium on Premier NLU graduates, since that itself, to a degree, is a testimony of their competence in the field and adaptability to the dynamicism of the profession.
Hence, such a market incentivizes NLUs to continue striving for excellence, which gives way to a feedback loop in the form of an ever-increasing demand for quality legal education.
Thank you!
August 22, 2021 at 5:53 AM
We will be dividing our analysis into 3 posts dealing with 3 different broad questions due to the character limit:
Basic Demand-Supply Analysis
At the very onset, the data seems to indicate that a clear supply-demand relationship exists contingent on neither the price of CLAT application fees nor the median fees of NLUs/fees of NLS ( the 1st preference of 85 – 90 % of the applicants ) since demand has risen even with the rise in the fees of NLS (and that of other NLUs ) as well as rise in the price of application fees for CLAT.
Assumptions :
The price of the application fees of CLAT is not a good indicator of the demand for NLUs, since it makes up a very small fraction of the fees of NLUs, which is a much better indicator and the only real alternative to taking on the Y-axis in the demand-supply curve. Moreover this is supported by the survey data which showed 61% of the population considered university fees as the deciding factor, while only 38% considered application fees relevant. To this end, NLS fees is taken as representative of the fees of NLUs since NLS is the 1st preference of more than 85% of the students applying for CLAT
Another neglected issue is taking the real prices instead of nominal prices over the years, so the rise in the price of the fees of NLS ( taken since it’s the first preference of most aspirants ) would not seem that steep. The fees for NLS have risen from 63,770 to 2,75,00 pa, from 2008 to 2021 indicating a 231% rise in nominal terms.
However, in terms of real price, the fees of NLS now is 113,402, indicating a roughly 77% rise in real prices of NLS education rather than the spurious 231% rise
Analysis:
The fact that the demand of NLS has increased from around 11,304 to 70,277 reflecting a roughly 500% rise in demand, despite a 77% rise in price indicates that the demand curve has shifted to the right by a large magnitude due to non-price factors ( explained later ), so despite the rise in price and subsequent movement down the new curve the quantity demanded has still risen by a large amount
Elasticity
A ( Short Run ) - Both the demand and supply seem to be largely inelastic in the short run, considering that the demand for quality legal education cannot be easily changed with a change in price and the supply ( seats in NLUs ) cannot be increased in the short run because it requires infrastructural changes
B ( Long Run ) – In the long run, supply is far more elastic than demand as indicated by the rise in seats in NLUs from 1037 to 4157, a roughly 300 % increase due to a 77% change in price while demand has risen despite the change in price
State of Excess Demand Due to Artificial Barrier on Price:
However, it seems that even the lowest level of demand 11,304 is more than twice the high level of supply ( 4137 ) hence to reach an equilibrium ( considering the inelastic demand ) NLS would have to charge an extremely high sum of money, which is not possible considering the state character of the university. Hence the situation here is one of excess demand because theoretically NLS could raise its fees by a large amount and still get adequate demand to meet it. However, the prices cannot be raised in the interest of equity and the state character of the university which acts as an artificial barrier on price, hence CLAT is used to decide who gets the seat and who does not, considering the excess demand situation which vitiates market efficiency in legal education.
Part 2
At the heart of all the questions proposed, it requires an analysis of the factors affecting the increasing demand of law schools and the increase in prominence of legal education in India
Factors:
P – Population of educated Indians ( 10+2)
Between 2008 and 2021, the population of Indians who have completed their 10+2 and consequently been eligible for CLAT has risen sharply, which is perhaps the most important factor leading to rise in Demand for CLAT
R – Reputation of NLUs
The NIRF rankings are an imperfect measure of reputation, however, they gave us a crude idea of their reputations. Over the past few years, NLUs have definitely had better scores vis-a-vis their private counterparts.
L – Increased LPG Since the 2000s
After the 1991 economic policy change led to a huge influx of foreign capital, increasing the number of acquisitions and mergers, development of MNCs, similarly opening up of the economy helped in improving the quality of legal education. By integrating with global universities. The lucrative packages offered by the corporate sector have made law one of the most lucrative professions in India, furthering the demand for lawyers in the country. By 2008, 34 Indian companies were listed in Forbes Global 2000 ranking (https://hbr.org/2009/02/global-generations-focus-on-in) clearly showing the development of Indian firms in the global market. With the coming of the NDA government, the uproar for the opening up of the Indian legal sector to foreign law firms increased. This increases the scope liberalization and reciprocity with which Indian lawyers would be given opportunities in different countries. (https://law.asia/modi-set-liberalize-legal-sector/)
M- Growing Middle Class
“If India’s economy continues to grow as predicted, by 2025 the Indian middle class will number 583 million people, or 41 percent of India’s projected population”2- A lot of importance is put on education in the urban and semi-urban settings in the middle-class families in order to achieve a sense of security, which has led to the development of conventional professionals to choose from, law being one of those.
T – Development of Tutorials for CLAT
A relatively recent phenomenon, the Tutorials in CLAT have launched a propaganda campaign to highlight the benefits of getting into NLUs. Advertisements by coaching institutes saying ‘ Crack CLAT and get a 15 LPA package ‘ have definitely had a positive impact on the demand. Hence the rise in coaching institutes has shifted the demand curve to the right
V - Increased visibility of law in popular media
Since 2019 law has occupied a center stage among the media due to high-profile cases like Kulbhushan Jhadav, and increased popularity of shows like Suits which have risen in popularity. This is not to say that law wasn’t a popular presence in the media before, but it has definitely increased its stronghold in media since the late 2000s. Moreover, the entry of Jio and Netflix in 2015 and 2016 respectively have also affected the view of law among Indian youth.
Demand Function :
D = f(Px,P,R,L,T,M,V)
Part 3
Survey Data Analysis
The following analysis attempts to view the trends of demand for NLUs and CLAT via both quantitative and qualitative aspects. To that end, a survey was conducted with a sample space of 146 students. Attempts were made to ensure that the survey was representative, spanning people from different geographic, economic, and social backgrounds. The results are attached in the annexure, however, reference to those would be made in the course of this analysis.
Link to the Survey Data: https://docs.google.com/forms/d/1F099iEWv06MlcaUnz5rMFsmGTEWf1Fa7wR7tD_-fpuU/viewanalytics
Inferences Drawn from the Survey on the Demannd
Substitutes: Another interesting question answered in the survey was the relative importance of the role played by substitutes to legal education. The substitutes within law ie other law universities play a crucial role in determining preferences. Survey data shows that 87% of the people preparing for CLAT also give at least one other law entrance exam. This shows that these substitutes do indeed play a major role in determining the demand for NLUs. The other class of substitutes is the competition NLUs face from other fields like engineering, medical, management, etc. However, the survey indicated that less than 20% of people preparing for law entrances give these. So while 17% is a sizeable chunk, it does not indicate that majority of the people consider non-legal substitutes to NLUs, especially when compared to the substitutes within law.
Application Fee vs Fees of the University : A common issue faced in the demand-supply analysis of CLAT is which price to take on the Y axis, the price paid to write CLAT or the cost of studying at law universities. While neither of them is perfect, the data indicates the cost of the fees of the university is a better indicator. 61% of the population affirmed that fees of the university played a deciding factor in applying for its entrance exam, while only 17% made the same claim for application fees.
NIRF Rankings: Although not a perfect explanation of the order of preferences, NIRF rankings of law universities (ranked in the top 10) play a part in determining how students prefer universities. In the survey, there were 5 options (yes, semi-yes, maybe, semi-no, no) given to select from for this because of the subjectivity of the question. Out of 146 people, 45.9 percent selected yes and semi-yes, which shows the prominence these rankings have in determining which university to choose from. For this survey, we will be considering NIRF rankings 2019, as the 2021 rankings came out this month itself and couldn’t have made a big change. In the rankings, Symbiosis was ranked at the 7th position while Christ university was ranked at the 20th. In the survey, after NLUs, Symbiosis has been preferred by 47.3 percent while only 13.7 percent have preferred Christ. Here Jindal law school (which doesn’t participate in the NIRF rankings) has even lower i.e., 11.6 percent. One plausible reason with regards to why NLS is preferred more than other NLUs is that it has consistently topped the NIRF rankings since it started. The caveat is that NLS has been the first preference since the onset of CLAT, while NIRF rankings are relatively recent. However, it still remains a plausible factor affecting NLS’ prestige.
Fees of the University: However, fees is not a perfect indicator, as we can see more people prefer SLS over Christ, despite it being far more expensive.
For further research, a regional analysis of preferences would provide an excellent data source to analyze preference across the geographical sphere. This would be especially relevant in light of the domicile reservations mushrooming in NLUs and law entrances like MH-CET which have extremely high domicile reservations
- Sukarm and Nidhi
Hi everyone this is Kartik Sharma.
As some of my friends have elaborately covered most of the things, I would like to focus on only one particular aspect of this problem at hand, i.e., the unexpectedly sharp increase in number of aspirants from 2018 to 2019.
This increase in demand is certainly not along the curve as there has been no significant decrease in the fees of NLUs which would push up the demand by this much quantum. Behavioural changes and interest in a particular field also take time to develop.
I hypothesize a large rightward shift in the demand curve due to a significant change that happened in 2019, i.e., the shift in the mode of CLAT examination to pen and paper. CLAT 2018 was mired in controversy due to the flawed conduction of the exam in online mode and numerous technical issues the students had to encounter. CLAT 2019's shift to offline mode certainly created a sense of trust and certainty amongst the potential aspirants and therefore, a huge increase in the number of applicants. There is a possibility that many of the new additions to the large pool of the applicants might not have Law as their serious first option.
This increased trust may be included in some form of a variable in the standard demand equation .
Hi,
This post contains the analysis undertaken by Archita, Prachi and Rupam.
Please follow this link to check out our analysis-
https://drive.google.com/file/d/1LFeLQdL2tNORLtjDkNu223Y5bRGqpAF2/view?usp=sharing
Thank you
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