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Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America

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  • XiaoGang Che
  • Brad Humphreys

Abstract

We analyze the formation of rival leagues and deterrence by incumbent leagues in professional team sports, which is one of the least studied forms of competition in sports. We first survey the economic history of professional sport leagues in North America and develop stylized facts about rival league formation. We then develop a game-theoretical model to explain some of these interesting stylized facts, showing that if the bargaining power of the incumbent league is sufficiently small—i.e., less than a certain cutoff—the incumbent should choose expansion to deter the rival league formation; otherwise, it is optimal for the incumbent league to allow a rival league formation and then merge with it, conditional on rival league success. We further show that the incumbent league may pay players relatively high salaries as an alternative way to deter formation by a rival league. Copyright Springer Science+Business Media New York 2015

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  • XiaoGang Che & Brad Humphreys, 2015. "Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(2), pages 127-143, March.
    • Handle: RePEc:kap:revind:v:46:y:2015:i:2:p:127-143
    DOI: 10.1007/s11151-014-9439-7
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    Cited by:

    1. J. James Reade & Jan C. van Ours, 2024. "Consumer Perceptions Matter: A Case Study of an Anomaly in English Football," Economics Discussion Papers em-dp2024-03, Department of Economics, University of Reading.
    2. Gerald T. Healy III & Jing Ru Tan & Peter F. Orazem, 2020. "Measuring Market Power in Professional Baseball, Basketball, Football, and Hockey," The American Economist, Sage Publications, vol. 65(2), pages 214-231, October.
    3. J. James Reade & Jan C. van Ours, 2024. "Consumer Perceptions Matter: A Case Study of an Anomaly in English Football," Economics Discussion Papers em-dp2024-03, Department of Economics, University of Reading.
    4. Humphreys, Brad & Zhou, Li, 2014. "Loss Aversion, Team Relocations, and Major League Expansion," Working Papers 2014-3, University of Alberta, Department of Economics.
    5. Alexander Cardazzi & Brad Humphreys & Jane E. Ruseski & Brian P. Soebbing & Nicholas Watanabe, 2020. "Professional Sporting Events Increase Seasonal Influenza Mortality in US Cities," Working Papers 20-08, Department of Economics, West Virginia University.
    6. Margo Beck & Sara LaLumia, 2022. "Female Role Models and Labor Force Participation: The Case of the All-American Girls Professional Baseball League," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(4), pages 488-517, October.
    7. Bradbury, John Charles, 2017. "Monopsony and competition: The impact of rival leagues on player salaries during the early days of baseball," Explorations in Economic History, Elsevier, vol. 65(C), pages 55-67.
    8. Humphreys, Brad R. & Zhou, Li, 2015. "Reference-dependent preferences, team relocations, and major league expansion," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 10-25.

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    More about this item

    Keywords

    Deterrence; Professional team sports; Rival league; D42; L12; L83;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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