Pearson is to become the first FTSE 100 company to award its own degrees. It's among the first to respond to Universities minister David Willetts' calls for private providers to set up degree courses. At a rate of £6,500 a year for a basic three year BA it will undercut most UK universities (which can charge up to £9,000).

So far the option for universities to charge less than the maximum amount has been fairly nominal: most universities charge £9,000, with very few dropping below £8,500 (see the Guardian's chart of this year's fees across the UK here).

David Willettts' plan is that the new private companies will put the cat amongst the pigeons - causing other universities to panic and drop their costs.

But will it work? Education is one of those goods that increases in value the more you are charged for it, so universities which lower their fees to compete with FTSE companies are likely also to lower themselves in the public estimation. So far the (barely differing) price bands have been Russell group vs non-Russell group - the older universities with the best reputations charge the highest amount, rather than prices being based on any economically measurable outcome. This being the case, there is little newcomer-chancers like Pearson can do to compete.

The best Willetts can probably hope for is that universities will split into two groups, with those who can't stay in the Russell tier gradually peeling off to compete with Pearson and co. But with both lower fees and the lower demand that will come with the damage to their reputations, the second group will struggle to match the educational resources accessed by the first. The already-visible gap between the standard of education offered by different universities is set to widen.