British higher education is an international "anomaly" for failing to charge a market rate to students, according to the former vice-chancellor of the University of Oxford.
Speaking at a Council for Industry and Higher Education seminar in London last week, John Hood also said that because of their unusual status, universities can be "misunderstood quite badly".
"Universities are charitable organisations, but people confuse the fact that they are charitable with the fact that they have to maintain financial integrity," he said.
"What they don't have is a bottomless pit (of money). It has always seemed extraordinary to me that businesses think they can wander along and ask universities to do anything they want.
"Business needs to understand that everything has a cost."
Dr Hood said that Lord Browne's independent review of fees and funding was timely, as student contributions in the UK were out of step with the rest of the world.
He said: "There does seem to be something of an anomaly here. There are very good social reasons in this country as to why that might be the case, but I'm pleased to see that at this stage the country is prepared to think about this."
Dr Hood added that universities were working in a competitive global market and needed to ensure that they could continue to attract the best students and scholars.
"One of the jewels of this country is that its universities ... are respected worldwide," he said. "We need to think very carefully about what we should be doing in funding these institutions."
Dr Hood, who was vice-chancellor of Oxford from 2004 to 2009, warned delegates that incentives for universities to work with business were "relatively weak".
He added that too much of the focus in business engagement was on science, technology, engineering and mathematics, in which the UK had relatively small-scale operations.
"We don't have the critical mass ... necessary to have the sort of financially scalable spin-offs that we've seen from Stanford University and the Massachusetts Institute of Technology," he said.