Star Wars: Exclusive Superstars and Collusive Outcomes
FEUNL Working Paper No. 496
37 Pages Posted: 20 Sep 2006 Last revised: 22 Dec 2013
Date Written: July 1, 2006
We examine the impact of agreements that prohibit superstars from switching their services to rivals on firms' ability to collude. Exclusivity (or non-compete) clauses are not uncommon in the sports, entertainment and professional services industries, but courts often refrain from enforcing them owing to inequity and/or restraint of trade considerations. We argue this attitude may be misguided. While in the collusive path exclusion may be inconsequential because firms agree not to hire each other's star, its enforcement level affects the severity of future punishments. For exclusive talent may not be poached by rivals. The ability to sustain tacit collusion may thus be impaired, which in plausible constellations leads to efficiency improvements and more equitable distribution of rents.
Keywords: collusion, contract enforcement, exclusive contracts, non-compete covenants, supergames, superstars
JEL Classification: J44, K21, L42
Suggested Citation: Suggested Citation