Education is not a market where perfect competition obtains (as for fungible commodities like oil or cotton or iron). Rather, it follows laws of monopolistic competition, so price doesn't automatically converge on a sensible equilibrium.
I would agree with this statement, but the prestige situation is a self ensured stagnation.
You do see big private competitors such as Phoenix, but in order to compete they lose out in the prestige competition.
I think the only real disruptive players in the business timelines that Universities operate in are the technical school, but they have been around long enough to play the prestige game also.
Phoenix for example will need to operate for 100 years to even begin to sit at the table with the nostalgia crew.
Phoenix is probably does more harm than good to the for-profit or at least disruptive private college community. Their targeting of federal subsidies that often account for ~90% of their income and the stories of them doing things that basically trick low income people into spending more money than they will get from the degree give everyone a bad impression. Even if these stories are all exaggerated (which I have no reason to believe they are), they aren't entirely false and it makes people (reasonably) dubious of other for-profit schools. Someone should have made an elite for-profit school first that then expanded to what Phoenix could be.
It's like google and other companies with driver-less cars. Sure, their cars might be safer than drivers statistically, but if you get a few high profile accidents that a driver could have stopped, they will probably get swamped in bad PR and get delayed many years. Luckily, this hasn't happened.
" According to the Delta Cost Project, most of the nation’s public research universities had more than half their costs paid by tuition in 2008, and other four-year public institutions were hovering near the 50 percent mark. With three more years of tuition increases, they, too, have probably passed it, said Jane V. Wellman, executive director of the project, leaving only community colleges as mostly state-financed."
If public universities were mismanaged and inefficient, we would see private ones providing a better product at a lower cost.