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A Contest Model of a Professional Sports League with Two-Sided Markets

  • Helmut Dietl

    ()

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

  • Tobias Duschl

    ()

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

  • Egon Franck

    ()

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

  • Markus Lang

    ()

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

This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network effects operate from the fan market to the sponsor market, while positive or negative network effects operate from the sponsor market to the fan market. Clubs react to these network effects by charging higher (lower) prices to sponsors (fans). The size of these network effects also determines the level of competitive balance within the league. We further show that clubs benefit from stronger combined network effects through higher profits and that network externalities can mitigate the negative effect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/114_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 0114.

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Length: 30 pages
Date of creation: Nov 2009
Date of revision: Nov 2010
Handle: RePEc:iso:wpaper:0114
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