"increasing competition between universities"
Rmoney should well know that competition in a free market only happens in situations of excess supply or for rare resources.
Universiies already compete for all star running backs and quarterbacks. They compete for kids with 4.0 GPAs and +/-1600 SATs / GREs. They will only start competing for kids with 3.0 GPAs and 1100 SATs when there are so many seats available in classes that these kids become a rare commodity. The only way this happens is if the supply of seats in classes is vastly increased.
There is an experiment underway currently with massive on-line courses being conducted by MIT and a few other schools. At least one of the courses is being prepared for as many as 100,000 students to be in attendance. This would massively expand the number of seats available and reduce the cost per student to produce the class. They believe that they may have a model which provides massive interaction and maintains quality, but it is just in the experimental stage. This obviously would only work with selected material.
In my field, wetlands ecology, at some point there is no substitute for strapping on the snake boots and getting a bit wet. With an MBA it might be a bit different.
All this aside, it is still hard to see why universities would begin to compete for average or less than average students. The "free trade" model has long depended on the unfortunate notion that we would become a massively educated workforce. You can only get there in theory by having many average kids become graduates. This requires the majority of us to successfully attend college. The sink or swim model most universities offer only works for those who can swim. As you head down the GPA / SAT / GRE scale, the proporton of swimmers declines. At some point along this scale, univertities stop competing for kids, in many majors it stops near a GPA of 3.8 to 3.9 and an SAT of 1400, or just a few hundreths of a second too long in the 40 yard dash with full pads.
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