In what sense is Democratic predominance a problem? And what "market failure" is responsible?
Perhaps the truth is that many conservatives do not really believe in competition; instead they want conservative ideas imposed because these ideas are not doing well in the marketplace.
I think that his last statement goes too far. I do not think that conservatives want to impose their ideas. Their issue is whether conservative ideas get a fair hearing in academia.
But Miron's question is important. Where is the market failure? I am not sure, but I definitely do not believe that consumers are sovereign. The accreditation monopoly is one market imperfection to which I can point, but I suspect that it is not decisive.
Colleges compete most aggressively for affluent students. They compete more on the basis of amenities than on the basis of substance. I suspect that this is a segregation equilibrium, in which affluent parents seek out schools chosen by other affluent parents, and amenities serve as a signal of affluence.
Perhaps parents care more about whether their children will be happy in college than about whether they will obtain a valuable education there. As a result, college is a period of extended adolescence. Moreover, one could argue that many faculty are attracted by the prospect of perpetual adolescence. The liberal bias is part of that perpetual adolescence.
As parents, my wife and I want something other than extended adolescence as a college experience for my daughters. Most of my friends, who are liberals, share our preferences. For us, the market has failed. I am not sure why.
UPDATE 2: I think that one source of market failure could be the fact that government is so heavily intertwined with higher education. For colleges to hire anti-government professors would be to bite the hand that feeds them.