Universities and colleges would be able to bid for extra students by promoting their most valuable features under proposals being prepared by the Higher Education Funding Council for England.
A peer review group would be set up to consider the bids, says Brian Fender, the council's chief executive.
Institutions would be expected to present their case for more students on grounds such as their location, social and economic factors, subjects covered and evidence of high quality.
Those providing higher education in areas with few institutions, in shortage subject areas, or promoting access for non-traditional students and those from economic and socially deprived localities, might be looked at sympathetically.
In an interview with The THES, Professor Fender said: "The allocation of student numbers should be influenced by institutional strategies and mission statements. That is in line with the notion of encouraging institutions to build on their strengths.
"But we would have to have a way of reviewing missions, and we would expect to rely heavily on the advice of a peer review group for that."
Various indicators of quality, some of which could be developed by institutions themselves, would also be taken into account.
"We would consult institutions on whether they could provide quality data which could lead to the allocation of student numbers. That would be assessment data, information about audit and any other quality information that institutions themselves wanted to draw our attention to," Professor Fender added.
But he rejected calls for levels of external quality assessment to be varied according to the "maturity" of institutions' own quality monitoring systems.
"Some may hope for that lightness of touch, but many are concerned that quality processes should be even-handed," he said.Professor Fender is in the process of preparing the council's case for an adequate level of funding in the next public expenditure round.