Two-Sided Network Effects and Competitive Balance in Professional Team Sports

36 Pages Posted: 19 Feb 2008

See all articles by Sang Hoo Bae

Sang Hoo Bae

Clark University - Department of Economics

Jiyoung Kwon

University of North Texas - Department of Economics

Date Written: February 18, 2008

Abstract

This paper analyzes issues associated with network effects and two-sidedness in the market for professional team sports. Teams in professional sports leagues have to compete both for players (inputs) and fans (consumers). In this setting, we construct a theoretical framework where fans are more attracted to a team with a large portion of talented players from a fixed talent pool, at the same time that players want to show their ability in front of a large number of fans. We observe that either perfect imbalance or alleviated imbalance will prevail as an equilibrium. The outcome depends upon the relative magnitude of two opposite effects, the product differentiation effect and the wage reduction effect caused by externalities from the size of talented players and fans respectively. Furthermore, we incorporate asymmetric relative quality effects into consumers' utility in order to analyze its impact on competitive balance. This is shown to either exacerbate or improve the imbalanced distribution of talented players, depending on fans' sensitivity to the relative quality between teams. The policy implications of revenue sharing on competitive balance and the level of wage offers under the condition of two-sided network effects are analyzed.

Keywords: Network externality, Two-sided market, Competitive balance, Revenue sharing, Sports economics

JEL Classification: L83, L14, L15

Suggested Citation

Bae, Sang Hoo and Kwon, Jiyoung, Two-Sided Network Effects and Competitive Balance in Professional Team Sports (February 18, 2008). Available at SSRN: https://ssrn.com/abstract=1094821 or http://dx.doi.org/10.2139/ssrn.1094821

Sang Hoo Bae (Contact Author)

Clark University - Department of Economics ( email )

950 Main Street
Worcester, MA 01610
United States

Jiyoung Kwon

University of North Texas - Department of Economics ( email )

Denton, TX 76203-1457
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
247
Abstract Views
1,415
rank
181,596
PlumX Metrics