It’s a similar problem to the scientific journals that extort scientists.
The elite universities are not primarily selling education they’re selling prestige. In academia it’s worse because prestige is the metric for getting grants and status since the pay is bad.
It’s also not great in private companies since institutional prestige is used to filter inbound interest, but it’s better because at least there are other ways to prove ability - it’s just harder to get the opportunity.
The prestige is also available for direct sale - I think you could pay $5M for a building or something and your kid could go to Stanford (I was told this off the record by a student that worked in admissions) That was the irony with the whole “famous people cheating their way in” news cycle, the schools were angry they were getting a discount on the fee (and probably that this hurt their prestige).
Schools like Harvard also hold spots that help their own prestige, in Lisa Brennan-Jobs (great) book Small Fry she talks about her Harvard interview and the woman was basically an ass ignoring her until she mentioned her dad founded a computer company. When the interviewer realized her dad was Steve Jobs she literally got up and left for a moment, then came back with an entirely different demeanor. Lisa expected it to help (she was counting on it), but even she was surprised by the obviousness of it. She was accepted.
If you read the admissions content that came out in the affirmative action SCOTUS case you can see how messed up it is. [0] This kind of high status selective scarcity creates perverse incentives.
If the goal was actually educating smart people, the behavior of the institutions would be different (probably more ISAs and such), but that’s not the primary goal and the behavior reveals it.
[0]: https://colemanhughes.substack.com/p/10-notes-on-the-end-of-...