We put my daughter on a waitlist for the daycare her siblings attended when she was one month old. Fourteen months later, she is still waiting, and we are looking around for other options. Almost every daycare I contact is full, with many saying their waitlists run into 2025.

This sounds like a classic shortage: demand exceeds supply at prevailing prices. But I am puzzled by such a shortage in the absence of price controls. Why don’t these daycares simply raise prices enough to eliminate their waitlists?

Theories:

1. The kind of person who runs a daycare is not inclined to act as a ruthlessly efficient profit maximizer. This probably explains some of it, but some of the daycares are literally publicly traded for-profit corporations, and they still have big waitlists.
2. Daycares deliberately underprice infant care as a loss leader to sell care to older kids. Sure, they could raise prices for infants and make more money today, but they want to make sure their preschool stays full down the road, and the easy way to do that is to keep infants as they age.
3. This is a temporary dislocation due to Covid. Demand fell off during Covid, some centers closed, then demand came back and the remaining centers are full. Perhaps opening a new center would be a good business, but regulation is slowing this down, or people just haven’t realized the opportunity yet.

I think there is something to each of these, but I still feel puzzled, especially since the most expensive locations seem to have the longest waits (at least here in Rhode Island). I can’t come up with a definite answer without lots more data on prices, waitlist sizes, entry, and exit. But I’d love to hear your theories.