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Contest Theory and its Applications in Sports

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Author Info
Helmut Dietl () (Institute for Strategy and Business Economics, University of Zurich)
Egon Franck () (Institute for Strategy and Business Economics, University of Zurich)
Martin Grossmann () (Institute for Strategy and Business Economics, University of Zurich)
Markus Lang () (Institute for Strategy and Business Economics, University of Zurich)

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Abstract

This paper outlines how the theory of contests is applied to professional team sports leagues. In the first part, we present the traditional Tullock contest and explain some basic properties of the equilibrium. We will then extend this static contest to a two-period model in order to analyze dynamic aspects of contests. In the second part, we will present applications of contest theory in sports. In particular, we will show how the Tullock framework is applied to models of team sports leagues. For this purpose, we will first explain the value creation process in team sports leagues and show how club revenues are related to the contest success function. Then, we present some basic modeling issues; for instance, we show how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. Furthermore, we explicate the effect of revenue sharing on competitive balance in the different models. Then we address the relationship between competitive balance and social welfare. Finally, we illustrate why many clubs tend to "overinvest" in playing talent in many team sports leagues.

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Publisher Info
Paper provided by International Association of Sports Economists in its series Working Papers with number 0913.

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Length: 30 pages
Date of creation: Nov 2009
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Handle: RePEc:spe:wpaper:0913

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Related research
Keywords: Contest theory; Tullock contest; sports leagues; competitive balance; revenue sharing; social welfare; overinvestment;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Recreation; Tourism

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