This paper analyzes the role of peer e ect in the market for higher ed- ucation. Peer effect is a key variable to understand why higher education institutions set tuition in a way to maintain permanent excess demand. We use data on undergraduate business courses in Brazil to estimate a discrete choice model of demand. The results show a strong impact of peer e ect on students’ choice of school. We calculate the tuition increase that would eliminate the excess demand. The results show that the upper limit of the total investment in peer effect is equal to US$ 770 thousands per month for the freshmen year, or 5.13% of the current revenues.