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Investment Behaviour in a Two-Period Contest Model

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Author Info

  • Martin Grossmann
  • Helmut M. Dietl

Abstract

This paper presents a two-period model of talent investments in which two clubs compete for a contest prize. We show that multiple equilibria are possible, using a closed-loop approach with strictly convex costs: The large-market club invests in both periods more than the small-market club or the small-market club invests in both periods more than the large-market club. In the case of an open-loop approach with strictly convex costs, however, the large-market club always invests more. The open-loop and closed-loop equilibria coincide if costs are linear.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 165 (2009)
Issue (Month): 3 (September)
Pages: 401-417

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200909)165:3_401:ibiatc_2.0.tx_2-c

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References

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  1. Stefan Szymanski & Stefan KÈsenne, 2004. "Competitive balance and gate revenue sharing in team sports," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 165-177, 03.
  2. Reinganum, Jennifer F., . "Dynamic Games of Innovation," Working Papers 287, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  4. Daniel R. Marburger, 1997. "Gate Revenue Sharing And Luxury Taxes In Professional Sports," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 114-123, 04.
  5. El-Hodiri, Mohamed & Quirk, James, 1971. "An Economic Model of a Professional Sports League," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1302-19, Nov.-Dec..
  6. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
  7. Martin Grossmann & Helmut M. Dietl & Urs Trinkner, 2008. "The Effect of Marginal Cost Elasticity on Competitive Balance," Journal of Sports Economics, , vol. 9(4), pages 339-350, August.
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Citations

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Cited by:
  1. Martin Grossmann & Helmut Dietl & Markus Lang, 2008. "Revenue Sharing and Competitive Balance in a Dynamic Contest Model," Working Papers 0822, International Association of Sports Economists & North American Association of Sports Economists, revised Nov 2009.
  2. Markus Lang & Martin Grossmann & Philipp Theiler, 2011. "The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 557-577, December.
  3. Helmut Dietl & Tobias Duschl & Egon Franck & Markus Lang, 2009. "A Contest Model of a Professional Sports League with Two-Sided Markets," Working Papers 0912, International Association of Sports Economists & North American Association of Sports Economists.
  4. Markus Lang & Alexander Rathke & Marco Runkel, 2009. "The Economic Consequences of Foreigner Rules in National Sports Leagues," Working Papers 0103, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jul 2009.
  5. Martin Grossmann, 2011. "Evolutionarily Stable Strategies in Sports Contests," Working Papers 0044, University of Zurich, Center for Research in Sports Administration (CRSA).
  6. Clark, Derek J. & Nilssen, Tore & Sand, Jan Yngve, 2012. "Motivating over Time: Dynamic Win Effects in Sequential Contests," Memorandum 28/2012, Oslo University, Department of Economics.
  7. J. Clark, Derek & Nilssen, Tore, 2010. "Learning by Doing in Contests," Memorandum 09/2010, Oslo University, Department of Economics.
  8. Helmut Dietl & Egon Franck & Martin Grossmann & Markus Lang, 2009. "Contest Theory and its Applications in Sports," Working Papers 0029, University of Zurich, Center for Research in Sports Administration (CRSA).
  9. Martin Grossmann, 2011. "Endogenous Liquidity Constraints in a Dynamic Contest," Working Papers 0148, University of Zurich, Institute for Strategy and Business Economics (ISU).

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