Regional Competition and Competitive Balance in Sport Leagues

26 Pages Posted: 24 Jul 2013

See all articles by Martin Langen

Martin Langen

University of Münster - Institute for Public Economics

Date Written: July 22, 2013

Abstract

A well-known finding in of sport economics is that differences in the winning probabilities of sport teams are determined largely by unequal market sizes and, therefore, revenue potential. Larger markets yield higher marginal revenue and thus, more units of talent being employed by the respective teams. In contrast to the existing literature, this paper presents a model with endogenous market sizes. Teams are able to choose their location at which they are based, implying a direct effect on their own, as well as on their opponent’s potential market size. This regional competition in sport leagues is analyzed in terms of overall payoff, competitive balance, and effectiveness of revenue sharing agreements for profit-, as well as for win-maximizing team behavior. It can be shown that the usually assumption of a strictly positive correlation between market size and success does not hold in general. Furthermore, evidence relating to major European football leagues is presented, indicating that a larger market does not necessarily imply more successful teams.

Keywords: Regional competition, competitive balance, European football

JEL Classification: L83

Suggested Citation

Langen, Martin, Regional Competition and Competitive Balance in Sport Leagues (July 22, 2013). Available at SSRN: https://ssrn.com/abstract=2296915 or http://dx.doi.org/10.2139/ssrn.2296915

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