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Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America

Author

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  • Che, XiaoGang

    (University of Alberta, Department of Economics)

  • Humphreys, Brad

    (University of Alberta, Department of Economics)

Abstract

We analyze the formation of rival leagues in professional team sports, one of the least studied forms of competition in sport. We survey the economic history of professional sports leagues in North America and develop stylized facts about rival league formation and develop a game-theoretic model of entry of a rival league to an existing market to explain these stylized facts. This model accounts for the strategic interaction between the incumbent and rival league and costs associated with acquiring new players from the incumbent league. The model predicts that either expanding to deter rival league formation, or allowing a rival league to form and then merging with that league is a subgame perfect equilibrium, and that incumbent leagues will pay players relatively high salaries to deter entry by a rival league.

Suggested Citation

  • Che, XiaoGang & Humphreys, Brad, 2012. "Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America," Working Papers 2012-23, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2012_023
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    File URL: https://sites.ualberta.ca/~econwps/2012/wp2012-23.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gerald T. Healy III & Jing Ru Tan & Peter F. Orazem, 2020. "Measuring Market Power in Professional Baseball, Basketball, Football, and Hockey," The American Economist, Sage Publications, vol. 65(2), pages 214-231, October.
    2. Alexander Cardazzi & Brad Humphreys & Jane E. Ruseski & Brian P. Soebbing & Nicholas Watanabe, 2020. "Professional Sporting Events Increase Seasonal Influenza Mortality in US Cities," Working Papers 20-08, Department of Economics, West Virginia University.
    3. Margo Beck & Sara LaLumia, 2022. "Female Role Models and Labor Force Participation: The Case of the All-American Girls Professional Baseball League," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(4), pages 488-517, October.
    4. Bradbury, John Charles, 2017. "Monopsony and competition: The impact of rival leagues on player salaries during the early days of baseball," Explorations in Economic History, Elsevier, vol. 65(C), pages 55-67.
    5. Humphreys, Brad R. & Zhou, Li, 2015. "Reference-dependent preferences, team relocations, and major league expansion," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 10-25.
    6. Humphreys, Brad & Zhou, Li, 2014. "Loss Aversion, Team Relocations, and Major League Expansion," Working Papers 2014-3, University of Alberta, Department of Economics.

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    More about this item

    Keywords

    professional team sports; rival league; monopsony;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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