A new NBER paper (ungated version) from Stanford's Caroline M. Hoxby finds that even as it's grown increasingly difficult to get into a top university, the average selectivity of all colleges has actually fallen over time:

students used to attend a local college regardless of their abilities and its characteristics. Now, their choices are driven far less by distance and far more by a college's resources and student body.

What's interesting is that the change in selectivity is driven largely by smarter students choosing to go to universities with similarly smart students. So, colleges that had an initial selectivity advantage, i.e. the Ivies, were the natural targets for this evolution in student preferences.

And these students, being the young whipper-snappers they are, have managed to get a really economic good deal in the process:

even though tuition has been rising rapidly at the most selective schools, the deal students get there has arguably improved greatly. The result is that the "stakes" associated with admission to these colleges are much higher now than in the past.

The following chart captures some of the benefits of going to a selective school (click for larger):