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Sports League Expansion and Economic Efficiency: Monopoly Can Enhance Consumer Welfare

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  • Lawrence Kahn

Abstract

This paper studies optimal sport league size. League expansion lowers average player quality, reducing fans’ utility in inframarginal locations, while fan utility in new locations rises. Welfare analyses of such expansions must compare these two effects. Using a model where fan demand depends on average player quality and locality-specific factors, I find that under various pricing schemes, optimal league size is smaller than under free entry: the marginal team ignores its effects on inframarginal fans’ utility. In some cases, the monopoly outcome is optimal, while in others the optimum league size is between the competitive and monopoly solutions.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1101.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1101

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  1. John J. Siegfried & Andrew Zimbalist, 2000. "The Economics of Sports Facilities and Their Communities," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(3), pages 95-114, Summer.
  2. Hausman, Jerry A & Leonard, Gregory K, 1997. "Superstars in the National Basketball Association: Economic Value and Policy," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(4), pages 586-624, October.
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Cited by:
  1. Daniel, Rascher, 2008. "Franchise Relocations, Expansions, and Mergers in Professional Sports Leagues," MPRA Paper 25809, University Library of Munich, Germany.

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