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Abstract:
The fundamental difference between the structure of team sports in the U.S. and in the rest of the world is openness. In the U.S., sports leagues are closed: membership of the league is in the gift of the existing members, who typically only grannt the right of entry in exchange for a substantial fee. Outside of the U.S., teams sports leagues are open: membership of the league is contingent on success. Sports are organized in ascending tiers (generally called divisions) and every year the worst performing teams are relegated to the nnext lowest division and replaced by the best performing teams from that division. This system operates in soccer, rugby (league and union), European basketball, cricket and almost all other team sports. Our main argument in this paper is that the institution of promotion and relegation tends to raise consumer welfare by increasing effective competition among the teams in a league. Because teams seek to avoid relegation as well as to win championships, they have greater incentives to invest in players than teams participating in closed competitions. For lesser teams in lower divisions tha allure of promotion to the top division enhances the inncentive to invest in players and provides added interest to junior league competition. Moreover, promotion provides a market-based means of permitting new entry to check the power of incumbent clubs to exercise market power - most notably their ability to secure tax subsidies for stadia. Promotion and relegation is in fact an ideal structure for surgical antitrust intervention to promote entry, since it involves replacing the least efficient (in terms of wins) incombent with the most efficient entrant. Moreover, entry is only conditional on continuing success, so that a relegated incumbent has an opportunity to recapture its position the following season. In this sense, promotion and relegation is analogous to the Baumol-Willig efficient components pricing rule (ECPR), which requires incumbents to grant than the incumbent can enter the market. We justify antitrust intervention through an argument that the decision by current clubs to maintain a closed-league structure constitutes an unreasonable restraint of trade.

Abstract:
Rejecting the conventional wisdom that sports leagues must be run by the clubs that participate in the competition, we adopt the approach of Australian courts and view sports leagues as products created by the vertical integration of upstream "competition organizing services" and downstream "clubs participating in the competition." We detail the concern that, assuming that a league does not face reasonable substitutes (i.e., a rival league), a club-run structure leads to inefficiencies in the determination of the number and location of franchises, the sale of broadcast, marketing, and sponsorship rights, the effective oversight of club management, and the efficient allocation of players among teams. Specifically, we identify transactions costs as a significant impediment to efficient agreement in club-run leagues. We next identify the core function of a league as the organization of competition, and explain why key decisions relating to the identity, number, and location of participating clubs should be made by an economic entity independent of the participating clubs. We argue that a vertical separation between leagues and clubs, with responsibilities assigned in franchise agreements between the league and each club, provides the best way to facilitate the efficient organization and marketing of the competition. We illustrate this thesis with some predictions as to how a league organizing a sporting competition independent from its clubs might allocate responsibilities more efficiently, and identify some of the legal benefits to the league that would follow from such a restructuring. We predict that these efficiencies should result in an increase in the combined value of an independent competition-organizing entity (perhaps "NFL, Incorporated") and club-franchisees compared to the combined current value of the franchises in a club-run league. Although investment bankers and outside investors should find it profitable to seek to purchase the assets and rights necessary to become the competition organizer, the same transactions costs that preclude efficiencies among club-run leagues also operate to inhibit a voluntary restructuring resulting in a more efficient league. Thus, we address antitrust and eminent domain theories that might bring about the involuntary restructuring of sports leagues along the lines discussed in this Article.

Abstract:
Current baseball talks of contraction exemplify the monopoly power that Major League Baseball exercises. Baseball owners are able to exploit monopoly power by, inter alia, holding the number of franchises down to a sub-optimal level in order to facilitate bidding (in terms of stadium subsidies) by communities, as well as by failing to invest at optimal levels in their own teams, secure that the threat of entry is minimal. The article argues that the international practice of "promotion and relegation" tends to raise consumer welfare by increasing effective competition among teams in a league. Teams faced with the threat of relegation will efficiently invest to develop a better product for their fans. Communities without major league clubs have the ability, through support of a new entrant into a lower-tier league, see investment in that team rise to a level to secure promotion to the major leagues.

This article develops the welfare-enhancing potential of promotion and relegation, and compares the two above-described features of monopolistic behavior in North American sports leagues with evidence that competition-through-entry does have salutary effects in English soccer. With this economic background, the article turns to the development of a legal argument that maintenance of a closed monopoly league constitutes a violation of federal antitrust laws, applying general principles used to evaluate the exclusion of rivals from monopoly joint ventures. Finally, the article discusses various issues of how to implement such a remedy.

Abstract:
This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade-off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a 'generic' product, which represents a form of competition for the monopolist. The monopolist will introduce a 'fighting brand' to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.

Abstract:
This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade-off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a "generic" product, which represents a form of competition for the monopolist. The monopolist will introduce a "fighting brand" to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.

Parallel trade, price discrimination, investments

Abstract:
This paper analyzes the issue of parallel trade (arbitrage) for products protected by intellectual property rights. Many countries have traditionally allowed owners of intellectual property rights to prohibit arbitrage in the face of international price discrimination. In a well-known paper Malueg and Schwartz (1994) showed that this policy decreases social welfare when the same markets are served in both regimes, with and without arbitrage. Their model considered only the setting of prices, and not investment in product development. We consider a two-stage game where firms choose quality first and then prices. Since the threat of arbitrage ex post reduces the incentive to invest ex ante, the net benefits of parallel trade may vanish. We also show that the size of the welfare effects is significantly affected by the presence of a 'generic' product, which represents a form of competition for the monopolist. The monopolist will introduce a 'fighting brand' to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.

Parallel trade, price discrimination, investments

Abstract:
This paper considers the relevance of the Coase Theorem to the analysis of sports leagues. It is widely believed that there exists an ideal competitive balance between teams in a sporting contest, and that without competitive restraints to redistribute resources championships will be too unbalanced. The paper reviews the empirical evidence on this issue to date, and then examines a model where the outcome may be either too little or too much competitive balance. Empirical evidence from English football suggests that the bias is likely to be in favour of too much competitive balance. The implications for European football in general and the Champions League in particular are then discussed.

Abstract:
This paper shows that under reasonable conditions, increasing gate revenue sharing among teams in a sports league will produce a more uneven contest, i.e. reduce competitive balance. This result has significant implications for antitrust authorities and legislators, who have tended to assume that revenue sharing arrangements will necessarily promote competitive balance.

Abstract:
Books reviewed:

P. Aghion and J. Williamson, Growth, Inequality and Globalization: Theory, History and Policy

Russell W. Cooper, Coordination Games: Complementarities and Macroeconomics

Walter Eltis, Britain, Europe and EMU

Daniel F. Spulber, Market Microstructure: Intermediaries and the Theory of the Firm

Charles P. Kindleberger, Essays in History: Financial, Economic, Personal

Andrew W. Lo and A. Craig MacKinlay, A Non-Random Walk down Wall Street

Abhinay Muthoo, Bargaining Theory with Applications

Abstract:
Most of the contest literature deals with first prizes; this Paper deals with the optimality of second prizes. We show that in a three-person contest where one contestant is very strong, a second prize can be optimal from the point of view of eliciting maximum effort from every contestant. Moreover, we consider the desirability of second prizes from the point of view of competitive balance, which matters for contests such as sports competitions.

Imperfectly discriminating (logit) contests, prizes

Abstract:
Parallel trade is the resale of a product by a wholesaler in a market other than that intended by the manufacturer. One of its consequences is that manufacturers may be prevented from price discriminating between markets that have different willingness to pay for the product in question. Some legal regimes give the manufacturer the right to prohibit parallel trade, but others do not. We examine the policy implications of parallel trade in a world in which manufacturers invest in product quality, and have the possibility to develop different quality variants of their goods. We also consider the possibility that the authorities may impose price caps and compulsory licensing (as commonly occurs for some pharmaceutical products). We find that taking investment incentives into account makes parallel trade much less likely to enhance overall welfare, which implies that parallel trade in products intensive in R&D, such as pharmaceuticals, is less desirable than in fields such as branded consumer products. We also find that, somewhat surprisingly, the threat of parallel trade does not induce firms to market inferior versions of their products in poor countries. However, parallel trade is less likely to be detrimental to welfare when there are price caps, since compulsory licensing can mitigate the major cost of parallel trade (namely a refusal to supply a poor country market).

Abstract:
Antitrust law distinguishes vertical and horizontal restraints. A horizontal restraint is one which exists between competing firms supplying rival products in a market, and a vertical restraint is one which exists between firms that jointly contribute to supplying a particular product in a market. Horizontal agreements receive much closer antitrust scrutiny because they often enable firms to limit competition at the expense of consumers, while vertical restraints may be legal or illegal depending on whether they tend to enhance or reduce competition or the exploitation of market power. This paper argues that there are important vertical restraints that operate in sports leagues which have been mostly neglected in the literature but have a significant impact. We focus on intraleague restraints, where member clubs of a league agree to control the organization of league competition, and interleague restraints, where horizontal agreement such as the Reserve Clause relies on agreements not to compete for players competing in senior or junior leagues.

Abstract:
This paper examines data on the racial composition and financial and sporting performance of professional English soccer teams between 1974 and 1993. In an earlier paper, Szymanski showed that teams with an above average proportion of black players would tend to perform better on average than would have been expected given the aggregate wage bills of these clubs. Since players are more or less freely traded in soccer, this presents strong market-based evidence of discrimination. In the present paper we explore the source of such discrimination. In particular, we are concerned with testing the hypothesis that discrimination is attributable to the fans rather than the owners. If fans were racially prejudiced, then the owners of a team might expect to generate a smaller marginal revenue product from a black player compared to an equally skilled white player. We assess the presence of fan discrimination by examining relationships between attendance, revenues, performance and the proportion of black players in the team. We also incorporate evidence regarding statements of racial prejudice (from the British Social Attitudes Survey) in particular regions. We find little evidence that the discrimination against black players has its source in fan discrimination.