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A contest model of a professional sports league with two-sided markets


Dietl, Helmut; Duschl, Tobias; Franck, Egon; Lang, Markus (2011). A contest model of a professional sports league with two-sided markets. In: 86th Western Economics Association International (WEAI), San Diego (USA), 2 July 2011 - 2 July 2011.

Abstract

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 e¤ects operate from the fan market to the sponsor market, while positive or negative network e¤ects operate from the sponsor market to the fan market. Clubs react to these network e¤ects 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 e¤ects 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.

Abstract

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 e¤ects operate from the fan market to the sponsor market, while positive or negative network e¤ects operate from the sponsor market to the fan market. Clubs react to these network e¤ects 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 e¤ects 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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Additional indexing

Item Type:Conference or Workshop Item (Lecture), refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Event End Date:2 July 2011
Deposited On:14 Feb 2012 07:41
Last Modified:28 Aug 2017 15:07
Publisher:University of Zurich
Series Name:Institute for Strategy and Business Economics Working Paper Series
Number:114
ISSN:1660-1157
Additional Information:Also presented at 35. Workshop der “Kommission Organisation”, Berlin, 23. - 25. February 2011
Related URLs:http://www.weai.org/index.html
http://ssrn.com/abstract=1500228
Other Identification Number:merlin-id:6351

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