If a school is built to handle 600 students, and is already near capacity, then they have two choices:
1) Build.
2) Keep enrollment at 600.
But since the free market has a way of punishing businesses who operate this inefficiently, I think you'll find they're the exception, not the rule.
I appreciate your arguments, but the fact is that all Tier 1 privates are at capacity and have chosen to stay there and have not risen rates despite having 10% acceptance rates. In fact, the large endowments they get subsidize the rates for everyone. What schools do instead, is become more selective in the kids they accept.
You can make the argument that "endowments" are a form of rate increase, but the majority come from Alumni, not parents.
Externally, to finish what I have observed, more schools are then opened as the demand increases. Some are really good and others are good.
