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An Economic Model of a Professional Sports League

Mohamed El-Hodiri and James Quirk
Journal of Political Economy
Vol. 79, No. 6 (Nov. - Dec., 1971), pp. 1302-1319
Stable URL: http://www.jstor.org/stable/1830103
Page Count: 18
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An Economic Model of a Professional Sports League
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Abstract

This paper investigates the economic structure of professional sports to determine the extent to which the current operating rules justify exemption of professional sports leagues from some aspects of antitrust statutes. We construct a formal decision-making model incorporating certain fundamental features of the industry. Within the context of the model we find that, under current rules of operation, equalization of playing strengths is generally not consistent with profit maximization by teams. However, we suggest a rule that guarantees convergence to a path of equal playing strengths under decentralized control of teams. As an example we study baseball leagues. Some refinements of the model are introduced, for example, incorporating time lags and training costs that result when teams train their own players.

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