A Contest Model of a Professional Sports League with Two-Sided Markets
University of Zurich - Institute for Strategy and Business Economics - Working Paper No. 114
30 Pages Posted: 7 Nov 2009 Last revised: 16 Nov 2010
Date Written: November 15, 2010
This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network effects operate from the fan market to the sponsor market, while positive or negative network effects operate from the sponsor market to the fan market. Clubs react to these network effects by charging higher (lower) prices to sponsors (fans). The size of these network effects also determines the level of competitive balance within the league. We further show that clubs benefit from stronger combined network effects through higher profits and that network externalities can mitigate the negative effect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities.
Keywords: Competitive balance, contest, multisided market, network externalities, team sports league
JEL Classification: L11, L13, L83, M21
Suggested Citation: Suggested Citation