Market Power

Musings by an academic economist on the power of markets and the power over markets.

Sunday, November 07, 2004

Sports Econ

This is the first semester I have taught Sports Economics and I wasn’t sure what to expect.

While I was working on gathering some free agent data from baseball, one of my students stopped by to talk about the material on the upcoming test. Specifically, he wanted to talk about the various ways a sports league can try to improve competitive balance.

It’s starting to gel with him, but he’s still having some trouble with the intricacies of some of the theories and their results. Gate revenue sharing may not do anything to competitive balance. Local TV revenue sharing can. Luxury taxes likely will. Salary caps may not do anything to competitive balance but can introduce problems similar to the problems ignited by price ceilings.

My student mentions a conversation he had with a buddy. He told his buddy that he was taking Sports Econ and his buddy replied (paraphrased, of course) “That’ll be a piece of cake. New York makes the most money so they get the best players. What’s there to learn?” My student now realizes there is more to it than this. He told me that he looked at his friend, shook his head, and told him that it’s not that simple.

When my class was covering the material on salary caps etc., one of the graduate students asked about “social inefficiencies” introduced by luxury taxes, revenue sharing, etc. He can see why fans of the Twins want to reign in the high-spending Yankees, but why is that good for the Yankees? Isn’t the league taking away something from their fans that they are willing to pay for?


It’s the first time I’ve taught this course although I’ve been studying Sports Econ since the subject was a preschooler, 10 years ago. I wasn’t sure what to expect, but it has been a pleasant surprise.