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Revenue Sharing and Competitive Balance in a Dynamic Contest Model

  • Martin Grossmann

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Helmut Dietl

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Markus Lang

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

This paper presents a dynamic model of talent investments in a team sports league with an infinite time horizon. We show that the clubs' investment decisions and the effects of revenue sharing on competitive balance depend on the following three factors: (i) the cost function of talent investments, (ii) the clubs' market sizes, and (iii) the initial endowments of talent stock. We analyze how these factors interact in the transition to the steady state as well as in the steady state itself.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/70_ISU_full.pdf
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0070.

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Length: 28 pages
Date of creation: Sep 2007
Date of revision: May 2009
Handle: RePEc:iso:wpaper:0070
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  1. Peter Sloane, 2006. "Rottenberg and the Economics of Sport after 50 years: An Evaluation," Working Papers 0608, International Association of Sports Economists;North American Association of Sports Economists.
  2. 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.
  3. Martin Grossmann & Helmut Dietl, 2007. "Investment Behaviour in a Two Period Contest Model," Working Papers 0069, University of Zurich, Institute for Strategy and Business Economics (ISU).
  4. 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 1302-19, Nov.-Dec..
  5. Stefan Kesenne, 2000. "Revenue Sharing and Competitive Balance in Professional Team Sports," Journal of Sports Economics, , vol. 1(1), pages 56-65, February.
  6. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  7. Young Lee & Rodney Fort, 2008. "Attendance and the Uncertainty-of-Outcome Hypothesis in Baseball," Review of Industrial Organization, Springer, vol. 33(4), pages 281-295, December.
  8. Rodney Fort & James Quirk, 2007. "Rational Expectations And Pro Sports Leagues," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 374-387, 07.
  9. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  10. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  11. Stefan Szymanski & Stefan KÈsenne, 2004. "Competitive balance and gate revenue sharing in team sports," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 165-177, 03.
  12. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  13. Daniel R. Marburger, 1997. "Gate Revenue Sharing And Luxury Taxes In Professional Sports," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 114-123, 04.
  14. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  15. Helmut Dietl & Markus Lang & Stephan Werner, 2008. "Social Welfare in Sports Leagues with Profit-Maximizing and/or Win-Maximizing Clubs," Working Papers 0090, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Jul 2009.
  16. John Vrooman, 2007. "Theory Of The Beautiful Game: The Unification Of European Football," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 314-354, 07.
  17. Philippe Cyrenne, 2009. "Modelling Professional Sports Leagues: An Industrial Organization Approach," Review of Industrial Organization, Springer, vol. 34(3), pages 193-215, May.
  18. Christian Riis & Derek J. Clark, 1997. "Contest success functions: an extension," Economic Theory, Springer, vol. 11(1), pages 201-204.
  19. Helmut Dietl & Egon Franck & Markus Lang, 2005. "Overinvestment in Team Sports Leagues: A Contest Theory Model," Working Papers 0038, University of Zurich, Institute for Strategy and Business Economics (ISU), revised 2007.
  20. Helmut Dietl & Markus Lang, 2006. "The Effect of Gate Revenue-Sharing on Social Welfare," Working Papers 0012, University of Zurich, Center for Research in Sports Administration (CRSA), revised 2007.
  21. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  22. Thomas Hoehn & Stefan Szymanski, 1999. "The Americanization of European football," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 203-240, 04.
  23. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  24. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
  25. Rodney Fort & Jason Winfree, 2009. "Sports Really are Different: The Contest Success Function and the Supply of Talent," Review of Industrial Organization, Springer, vol. 34(1), pages 69-80, February.
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