How geographical neighboring competitors influence the strategic price behaviors of universities is still unclear because previous studies assume spatial independence between universities. Using data from the National Center for Education Statistics college navigator dataset, this study shows that the price of one university is spatially autocorrelated to its neighboring competitors and such neighborhood structure induces cooperation Nash equilibrium in a spatial price game. In the spatial price game of universities the possibility of the cooperation solution is about 76%, while that of the defeat solution is about 24%. This study demonstrates that the relation between price difference and geographical distance of universities is an inverse U-shaped curve rather than a line.

The full models are estimated by spatial econometric models using county-level data from 1513 Chinese counties. The results indicate the existence of spatial contagion effects among local governments with respect to spending on local education. Financial shortages in education tend to be contagious; they affect counties or regions in geographic proximity. Contagion occurs due to three different fundamental causes: Intergovernmental competition, political economy and neighborhood watch. The possibility of contagion depends strongly on education investment, financial and economic conditions, cultural diversity, urban/rural distribution, and population structure. Poor counties are much more likely to become “infected” by neighboring financial behavior in education. The empirical evidence suggests that the speed of contagion is faster in economically underdeveloped areas than in economically developed areas.