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

See all articles by Helmut M. Dietl

Helmut M. Dietl

University of Zurich - Department of Business Administration (IBW)

Tobias Duschl

University of Zurich - Department of Business Administration (IBW)

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Markus Lang

University of Lausanne - Faculty of Social and Political Sciences

Date Written: November 15, 2010

Abstract

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

Dietl, Helmut M. and Duschl, Tobias and Franck, Egon P. and Lang, Markus, A Contest Model of a Professional Sports League with Two-Sided Markets (November 15, 2010). University of Zurich - Institute for Strategy and Business Economics - Working Paper No. 114, Available at SSRN: https://ssrn.com/abstract=1500228 or http://dx.doi.org/10.2139/ssrn.1500228

Helmut M. Dietl

University of Zurich - Department of Business Administration (IBW) ( email )

Hottingerstrasse 10
Plattenstrasse 14
Zurich, 8032
Switzerland

Tobias Duschl

University of Zurich - Department of Business Administration (IBW) ( email )

Hottingerstrasse 10
Plattenstrasse 14
Zurich, 8032
Switzerland

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

Markus Lang (Contact Author)

University of Lausanne - Faculty of Social and Political Sciences

Quartier UNIL-Centre
Synathlon
Lausanne, 1015
Switzerland

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