This paper presents a theoretical model and empirical estimations to evaluate the effects of competition on school quality. Empirical estimations, using roughly 5,000 Chilean schools in the 1994-1997 period and econometric techniques robust to endogeneity, support the theoretical model and show a positive and relevant effect of competition on the results of public-subsidized schools. The effects are bigger for the fraction of public-subsidized schools that are private, because they have incentives more directly related to academic performance