Abstract: As an important part of educational reform, the market reform on universities as organizations has been a hot topic for more than ten years. It is originated from the market economy in China. But why is the market economy different from the marketization of universities? Why did those institutional influences imposed by government have to be adjusted when introduced into universities? This paper emphasizes the importance of knowledge itself and takes a different perspective of the issues from the traditional concepts such as "regulations of education" and "essence of universities". Based on the theories of institutional transition and exchange cost, the present authors bring forward some market characters and price system of knowledge exchange in the institutional transition of universities, and meanwhile conclude the functions and regulations of knowledge exchange.