Roy,
I found your line, “The difference between Walmart and state universities is coercion. Walmart is large and has gotten that way by winning over customers voluntarily in the market place.” to be somewhat misleading.
Public Universities and Wal-Mart (by the way I’m a Wal-Mart fan) are similar. Wal-Mart is large, true, but they have gotten that way in TWO ways, one if by winning over customers, the other is by beating up on vendors on price. They can threaten to not purchase from any number of vendors which would effectively destroy them. They are able to use their weight to drive down their purchase price, and they do this well.
Mega-Universities use the same leverage with legislatures, but with an entirely different effect, the private universities become ever more lucrative because people want to pay for the BRAND and don’t want to go to a Wal-Mart University (aka state funded).
It’s like buying Prada vs a regular purse. You pay for the brand.