Market Power

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

Thursday, November 04, 2004

The Break-even Point

Sid Hartman of the Minneapolis Star-Tribune writes this column in which he makes a quick mention of Mankato’s hosting of the Minnesota Vikings Training Camp each summer.

The Vikings contract with Mankato ended after the 2003 training camp. Afterwards, Vikings owner Red McCombs shopped the Vikings around to other cities in order to find someone to help share the costs of camp and to create a festival atmosphere (can you say “market power?”). The primary bidders ended up being Mankato (at my college and 1 block from my office) and Sioux Falls, SD.

Many people thought the Sioux Falls was going to become the new home to Vikings Training Camp, but Minnesota governor Tim Pawlenty came in and gave the Vikings a taste of their own medicine: move the training camp out of state and forget about even asking the state for a new stadium.

BTW, according to Hartman, Mankato broke even. I wonder what would have happened had the Kansas City Chiefs and their fans *not* come to town for a Vikes-Chiefs scrimmage.


Shameless Plug

I wrote this paper on the effect of the construction of the Edward Jones Dome (NFL's Rams) and the Savvis Center (for the NHL's Blues) on construction employment and wages in St. Louis. If you follow what economists say on the subject, the findings aren't surprising. I don't find any evidence that construction employment was any higher or lower during the times these buildings were constructed.


Arlington Voting Areas

The external benefits and costs associated with a sports stadium are primarily felt in the areas nearest to the stadium. Craig Depken provides a map of Arlington, Tx. here that color codes voting districts with regards to the proportion of votes for public funding for a new stadium for the Cowboys. I have added three concentric circles centered at the site of the new stadium. From smallest to largest, the circles respectively represent areas approximately 1 mile, 2 miles, and 3 miles in radius.

The “red districts” are districts where more than 60% voted to approve public funding. The “light orange districts” and the “yellow districts” are the districts that voted down the referendum. Most of the red districts are located within three miles of the stadium site and are close to major arteries leading to and from the stadium (I-30 and Highway 360). All the districts that border on the intersection of I-30 and Highway 360 are red districts.

Most of the light orange and yellow districts are also near the stadium site and all but one of is within 4 miles of the stadium site.

I was interested in the types of areas around the stadium site (residential or commercial/undeveloped) and how the voters in the areas voted. I’ve never been to Arlington, so I did the next best thing. I went to MapQuest. The map of Arlington below gives us an idea what type of areas these districts are. The stadium site is in the area down and to the left of the intersection of I-30 and Highway 360.

The red areas near the stadium are largely devoid of side streets and look to be either zoned commercial or are yet to be fully developed. If so, it’s not surprising how voters in these districts voted since we expect the property owners within reasonable traveling distance of the site to be primary recipients of the external benefits of a new stadium.

Most of the light orange districts nearest to the stadium site are full of side streets. I presume that these light orange districts are largely residential. If so, the voters in these areas won’t realize the external benefits from the stadium but will instead bear some of its external costs (noise, traffic congestion on game day, etc.).

One of the light orange districts (the one immediately south of district containing the stadium site) has a railroad running through it and another one has a General Motors assembly plant in it. The commercial interests in these areas aren’t going to see the external benefits from the stadium but will share in its external costs. Here’s another map that focuses on that area.

So it seems that the special interests near the stadium voted as one would expect them to – those that will get the external benefits mostly voted yes while those that won't get the external benefits but will bear the external costs mostly voted no.


Wednesday, November 03, 2004

Way to go, Carl

One of my former students at the University of Missouri, Carl Edwards, is a driver on the NASCAR circuit. He drives the #99 car in the Truck Series and is currently in 4th place in the overall standings. He was promoted to the big circuit, the Nextel Circuit, and drives the #99 Green Lantern car (how cool is that?). He took third place in the Bass Pro Shops MBNA 500 on Sunday after coming into contact with Dale Earnhardt Jr's car with 15 laps to go, sending Jr. into the wall.



The NCAA has finally handed down its verdict on the University of Missouri basketball program - guilty on most counts. The basketball staff didn't do any one thing that was really bad, but it did a bunch of little things, and the NCAA finally had to lay the hammer down:

"Viewed individually, the violations were not egregious, but when viewed in the aggregate, the violations were significant and represented an attempt to gain unfair recruiting advantages."

The harshest claim was not verified:

"An allegation that the former associate head coach provided $250 to the two-year college prospect in fall 2002 was not found by the committee after a review of the evidence."

The coaching staff really bent the rules. If they don't play by the rules, they need to take their medicine.

One question: how much did the University of Missouri and the NCAA spend on all this? It's been going on for almost 2 years - from the day that the two-year college prospect battered his friend to now... judgement day.



When I was working as an economist at a research center at the University of Missouri, I was contacted by someone who wanted to bring a hockey team to the Mid-Missouri area. He called me to ask if I would publicly support his request for public funding. He told me he had conducted an economic impact study that he would share with me.

I was skeptical, but I told him that I’d look at his study. He did some good things – at least considering how economic impact studies generally go. He was careful enough to only include spending by out-of-towners in his analysis - although we can quibble about why those out-of-towners would be in Columbia to begin with. His estimates for amount spent per out-of-towner looked reasonable. He even calculated a net revenue flow that showed that after about 10 years or so, Columbia would begin realizing a positive net benefit if it invested in the hockey team today. At least this guy admitted that the city would be in the red in the short term.

The problem was that he never discounted the future expenditures to the present. The public provides funds for a stadium today and receives a (supposed) stream of benefits into the future. But he assumed that a dollar received today was equivalent to a dollar received 25 years from now. When I discounted the future income flows, the city never showed a positive net flow.

I pointed that out to him, and he never called me back.


Sports and Taxes

So the voters in Arlington, Tx. have passed the referendum to provide public funds for the construction of a new stadium for the Cowboys. They passed a new hotel tax and a car rental tax to pay off the bonds that will be sold to finance Arlington’s share of the construction. Kansas City, Mo. Voters passed a similar referendum to enact a car rental tax last August to build a replacement arena for Kemper Arena. See here. Arlington will start collection of these taxes on April 1st (April Fools, visitors. We raised your taxes).

These are politically popular ways of financing stadium construction – pass taxes that don’t fall on locals. Very few locals drive rental cars and probably even fewer get hotel rooms locally, so the burden falls on out-of-towners. Or does it?

A tax raises the price that consumers pay for goods, giving them an incentive to shop around for alternatives. There are lots of good substitutes available for hotels and rental cars in Arlington (e.g. in Fort Worth) and for rental cars in Kansas City (e.g. in Overland Park, Lenexa, and Lee’s Summit). So hotels and rental car dealers in Arlington will lose some customers. And then there’s the multiplier effect.

But taxes also lower the price that sellers get to keep after selling their good. There are some special circumstances that allow businesses to push a tax entirely onto their customers. One way is if customers are completely unresponsive to the price – they always buy the same amount no matter the price. Because of the availability of substitutes, this can’t be true in Arlington or KC.

The other way is if sellers are willing to sell at only one price, an unlikely occurrence. In general, customers end up bearing part of the tax burden and the sellers bear the other part. However, if a lot of good substitutes are available, the greater the burden borne by the sellers. This is likely the case for both Arlington and KC.


Tuesday, November 02, 2004

How Do You Teach a 4-Year Old About Growth?

This week in my Principles of Macro class, my students are examining the coordination of savings and investment. This weekend I gave my four-year old son, Alex, three quarters to put in his piggy bank. He, being of independent mind and spirit, announces that he only wanted to put one of the quarters into the piggy bank. He wanted to take one of the other quarters to daycare to show to his friends - and then put it into the piggy bank. Good enough. Two quarters will eventually make it in the piggy bank.

The third quarter was another matter. He wanted to give it to Santa Claus so that he would have enough money to make toys. So I did what any geeky economist-father would do - I tried to explain why he should put the quarter in the bank. What if Santa didn't need the quarter? If Alex puts his quarter into the bank, then that quarter will be available for somebody who wants it even if Santa doesn't want it. I told him that if Santa wanted it, he would borrow it from the bank.

And then I got devilish. Knowing my son wouldn't know WTH I was talking about, I told him that's how he could provide jobs, income, Berenstain Bears books, and Thomas engines for people in the future.

His response?

"But but but but *I* want to give it to *Santa*."

Will that quarter be tax decuctible?


NHL Lockout Update

It's day 47. Do you know where your NHL team is?

The teams and the players' union have not met in almost two months and the primary sticking point is a hard salary cap. This article in the Washington Post reports that the union will hold a meeting with representatives from the 30 teams to let them know about what's going on in the labor dispute.

Some are playing in the American Hockey League. Nearly one-third of the NHL players have contracts to play in Europe this year. This article reports that most of the players' contracts have clauses in them that will allow the players to return to the North America when the dispute ends. This flexible opportunity allows NHL players to earn an alternative income and allows them to keep in playing shape. This should strengthen the union position.

But some of the younger players have expressed public concern for the union position. The meeting is a chance for the union to bring these players in line.