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

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Author Info

  • 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.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2012-23.

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Length: 31 pages
Date of creation: 01 Oct 2012
Date of revision:
Handle: RePEc:ris:albaec:2012_023

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Keywords: professional team sports; rival league; monopsony;

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References

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  1. Martin Grossmann & Helmut Dietl & Markus Lang, 2007. "Revenue Sharing and Competitive Balance in a Dynamic Contest Model," Working Papers 0070, University of Zurich, Institute for Strategy and Business Economics (ISU), revised May 2009.
  2. Stefan Szymanski & Stephen F. Ross, 2007. "Governance And Vertical Integration In Team Sports," Contemporary Economic Policy, Western Economic Association International, vol. 25(4), pages 616-626, October.
  3. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
  4. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1201 - 1251.
  5. Helmut M. Dietl & Egon Franck & Markus Lang, 2008. "Overinvestment In Team Sports Leagues: A Contest Theory Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(3), pages 353-368, 07.
  6. Philippe Cyrenne, 2009. "Modelling Professional Sports Leagues: An Industrial Organization Approach," Review of Industrial Organization, Springer, vol. 34(3), pages 193-215, May.
  7. repec:sae:jospec:v:12:y:2011:i:4:p:407-431 is not listed on IDEAS
  8. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
  9. Lawrence M. Kahn, 2000. "The Sports Business as a Labor Market Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 75-94, Summer.
  10. Martin Pesendorfer, 2005. "Mergers Under Entry," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 661-679, Autumn.
  11. Martin Schmidt, 2011. "Institutional Change and Factor Movement in Major League Baseball: An Examination of the Coase Theorem’s Invariance Principle," Review of Industrial Organization, Springer, vol. 39(3), pages 187-205, November.
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