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Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America

Che, X.; Humphreys, B.R.

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Authors

X. Che

B.R. Humphreys



Abstract

We analyze the formation of rival leagues and deterrence by incumbent leagues in professional team sports, which is one of the least studied forms of competition in sports. We first survey the economic history of professional sport leagues in North America and develop stylized facts about rival league formation. We then develop a game-theoretical model to explain some of these interesting stylized facts, showing that if the bargaining power of the incumbent league is sufficiently small—i.e., less than a certain cutoff—the incumbent should choose expansion to deter the rival league formation; otherwise, it is optimal for the incumbent league to allow a rival league formation and then merge with it, conditional on rival league success. We further show that the incumbent league may pay players relatively high salaries as an alternative way to deter formation by a rival league.

Citation

Che, X., & Humphreys, B. (2015). Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America. Review of Industrial Organization, 46(2), 127-143. https://doi.org/10.1007/s11151-014-9439-7

Journal Article Type Article
Online Publication Date Aug 29, 2014
Publication Date Mar 1, 2015
Deposit Date Dec 6, 2014
Publicly Available Date Aug 29, 2015
Journal Review of Industrial Organization
Print ISSN 0889-938X
Electronic ISSN 1573-7160
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 46
Issue 2
Pages 127-143
DOI https://doi.org/10.1007/s11151-014-9439-7
Keywords Deterrence, Professional team sports, Rival league, D42, L12, L83.
Public URL https://durham-repository.worktribe.com/output/1416373

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