Amid the obvious complexity of schools' activities and the equally obvious differences between research universities and liberal arts colleges, and between for-profit and nonprofit schools, there is a fundamental simplicity. Every school does two things: it raises revenue and it spends it. It spends money to pursue its mission and it raises revenue to finance those expenditures. Every school of every form must generate revenue to advance its goals, however different those goals may be.

These two elements of each school's behavior – deciding how it can raise money and how it should spend it – provide a valuable starting point for examining how the various types of schools determine such elements as tuition and financial aid policy, how much to spend on fundraising, how much legislative lobbying to do for governmental grants, which level of intercollegiate athletics to play, how to capitalize on a strong brand-name reputation, how much to spend on recruiting students, whether to lease or buy classroom space, and what to look for in a new president. As we investigate these and other aspects of collegiate activities we can be guided by thinking of schools as “two-good firms” – choosing which methods to use for raising money and which activities to spend the money on. Both kinds of activities are affected by the school's competitive position as it considers how to define its goals and how to finance them.