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To the highest bidder: The market for talent in sports leagues

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Abstract

We present a realistic and novel micro-structure for the market for athletes in league sports. In our trading mechanism the clubs bid for individual players, internalizing the effect that a player not hired might play for the competition. For inelastic talent supply, our (wage minimizing) equilibrium supports the Coasian results of Rottenberg (1956) and Fort and Quirk (1995): talent allocation is independent of initial ownership and revenue sharing arrangements. When talent supply is elastic, revenue sharing decreases the aggregate amount of talent hired. This negative effect on the talent level may be efficiency enhancing when the competition for talent results in excess talent being hired. For the first time in the literature, we carry out our entire analysis using a newly formulated, unspecified club objective, incorporating both pecuniary and non-pecuniary benefits.

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  • Roberto Burguet & Jozsef Sakovics, 2016. "To the highest bidder: The market for talent in sports leagues," ESE Discussion Papers 275, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:275
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    1. Burguet, Roberto & Caminal, Ramon & Matutes, Carmen, 2002. "Golden cages for showy birds: Optimal switching costs in labor contracts," European Economic Review, Elsevier, vol. 46(7), pages 1153-1185, July.
    2. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August.
    3. Rosen, Sherwin & Sanderson, Allen, 2001. "Labour Markets in Professional Sports," Economic Journal, Royal Economic Society, vol. 111(469), pages 47-68, February.
    4. Simon Rottenberg, 1956. "The Baseball Players' Labor Market," Journal of Political Economy, University of Chicago Press, vol. 64, pages 242-242.
    5. Sonia Falconieri & Frédéric Palomino & József Sákovics, 2004. "Collective Versus Individual Sale of Television Rights in League Sports," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 833-862, September.
    6. Roberto Burguet & Jozsef Sakovics, 2016. "Bidding for input in oligopoly," ESE Discussion Papers 266, Edinburgh School of Economics, University of Edinburgh.
    7. Paul Madden, 2010. "The regulation of a large sports league," The School of Economics Discussion Paper Series 1007, Economics, The University of Manchester.
    8. Palomino, Frederic & Sakovics, Jozsef, 2004. "Inter-league competition for talent vs. competitive balance," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 783-797, June.
    9. Paul Madden, 2015. "“Walrasian Fixed Supply Conjecture†Versus “Contest-Nash†Solutions to Sports League Models," Journal of Sports Economics, , vol. 16(5), pages 540-551, June.
    10. Paul Madden, 2015. "Welfare Economics of “Financial Fair Play†in a Sports League With Benefactor Owners," Journal of Sports Economics, , vol. 16(2), pages 159-184, February.
    11. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
    12. 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 1302-1319, Nov.-Dec..
    13. Sloane, Peter J, 1971. "The Economics of Professional Football: The Football Club as a Utility Maximiser," Scottish Journal of Political Economy, Scottish Economic Society, vol. 18(2), pages 121-146, June.
    14. Paul Madden, 2011. "Game Theoretic Analysis of Basic Team Sports Leagues," Journal of Sports Economics, , vol. 12(4), pages 407-431, August.
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