Governments should avoid over-regulating the "inexorable rise" of private, profit-making higher education businesses, according to the Association of Commonwealth Universities.
Roger King, the first visiting research fellow at the ACU, said in a lecture this week that private providers of higher education had exploded onto the global market within "ill-sketched regulatory environments".
Professor King said that while the rise of such providers was often essential for economic development worldwide, some governments risked stifling growth and essential diversity through over-cautious regulation.
"As might be expected of market-based provision, where the policy framework often lags, there are opportunities for the 'fly-by-night', a situation that has made some governments wary of too loosely controlling private providers," he said.
In the US, the number of degree-granting for-profit institutions increased by more than 300 per cent between 1981 and 1999, from 165 to 721. The US-based Apollo Group, which includes the University of Phoenix, has an enrolment of about 200,000 students a year and a turnover of $1.8 billion (£1 billion) a year.
Professor King said that such developments were often welcome. Governments might view a growing private sector as a "spur for what some may regard as complacent state-funded domestic institutions", he said, and as a source of "innovative and international good practice".
Private providers could absorb student demand and "protect" elite universities "from the demands of mass higher education", and developing countries might see private providers as the only way of building capacity, he said.
But he warned that media scare stories and lobbying from traditional universities had led to pressure on private providers to "act more like a traditional university" - stifling diversity and growth.
"Governments can also face strong pressure from their public universities to control private institutions, on the grounds that they offer unfair competition by cherry-picking their subjects and hiring moonlighting staff without adequate recompense or investment in their academic development," he said.
Professor King suggested that governments could start with forms of self or co-regulation, with the state as a partner, and move to more interventionist and punitive methods if those failed.