The Peculiar Economics of Professional Sports, Book Review Example

The firm in professional sport is in a peculiar position vis-a-vis the accepted way of looking at the firm in a competitive way. The following are some unique features of professional sports firm.

The first peculiarity of the economics of professional sport is that therecipient depends on the competition among the individuals or the team (Page 3).

Thus, it does not depend upon business competition among the firms. It is also clear that the more the sporting and the competition the more the profit.

The paradox appears because the firm in law as recognized in the sporting world is not the firm of economic analysis and because the item that is sold by the sporting firm is not entirely their product (Page 4).

The sporting firm produces an indivisible product from a separate process of two or more firms. This phenomenon is referred to as the invented joint product or the joint product. Again, the product itself is a peculiar mixture in that it comes inindivisible parts, each of which is sold separately. However, it is also joint and multiple yet they are indivisible products.

The conclusion is that the business firm, as understood in law, is different from firm as understood in economic theory (Page 4).

In professional sport, the firm is the league. Thus, each professional sport is a natural monopoly. The several joint products that are product joints of legally separate business firm are complex joint products of a single firm, which is a natural monopoly.

In economics, a firm is recognized as a decision-making unit whose main objective is to make profit (Page 5).

These definitions assume that decision-making and profit taking entity are identical. In the case of professional sport, the legal firm takes the profits while the league makes the decision. However, due to the nature of the product they deal with (they sell an indivisible product) the resulting arrangement is that the two entities work together. Such arrangement may be more easily seen as a monopoly.

Another objective may be raised that there can be several leagues existing together and the competing firms should enhance these leagues.

The argument to this is that, as one observes the history, you will note that in such case there appears to be a tendency towards a single league. (Page 6)

There are four cases that result from inter-league business competition that can be noted from history (Page 6)

• Joining of economically competing oligopolistic firms into competitive natural monopoly
• Bankruptcy of one of the economically competing firms
• Survival of two or more leagues because they are not economically competitive. This case occurs when the league in question are operating in different geographical region. In such case, the league is inherently noncompetitive in sporting economic sense.

Diminishing quality return and input enthusiasm effect (pages 7-8)

1. The existence of two or more teams in the industry would depend on their value of marketability.
2. Only when the market demands for competitive status that one team has against the other that the reality of competition comes into existence. Only few teams are able to take care of such status and remain in the industry due to market enthusiasm; as the public continues to support the existence of a particular sports team
3. Marketing sports comes in groups and individual forms. Teams could be represented and marketed as a unit through promoting the whole package of players. Nevertheless, there are instances when individual advertising becomes necessary especially for top-notch players in the group.

• The survival of two leagues that are economicallyand sportingly competitive. This possibility largely depends on the relative shape and position of the demand and cost function.

The competition exists not between team and league but between sports (page 8).

The fan tends to prefer one sport to another probably due to influence from parents or past experience. However, shift of taste and preference do occur.

Definite division of sports market seems to be characteristic (page 10).

Some of the identifiable sports divisions are nation divisions, seasonal divisions, and social class division. Although these divisions are immutable, they are certainly hard to change.

Another additional peculiarity within the general sports monopoly is in term of demand and cost structures (page 11).

In professional sport industry, the firm of the economic theory is the league, which is a natural monopoly with demand, cost and profit adjustment tending toward unification of all the firms in the league into a single firma- firm rum.

Conclusion

Professional sports are natural monopolies that are marked by definitely unique features both in structure and in the functioning of the market. Thus, professional league are justified to appeal to legislature, court and to the public on this grounds.

Why is it disadvantageous for team to buy all good players in the league

A sporting firm needs competition to maximize its profit; the greater the economic collusion and the more the competition the greater the profit.  For instance, consider a heavy weight champion of the world, what can it do to increase its profit?  Since doubt about competition is what arouses interest, it needs a competitor and a strong competitor.If a team buys all the best players in the league, it weakens its competitor and thus reduces the interest. Beside a firm cannot produce a stream of utilities alone, it must have cooperation of the second firm even to produce a game.

If the ideal market position of a firm is a monopoly, or a monopolistic –like position how do sport firm balance competition in the league.

In professional sport industry, the firm of the economic theory is the league, which is a natural monopoly with demand, cost and profit adjustment tending toward unification of all the firms in the league into a single firm.The sport firm balance competition by advertising. Another option is trust management where the various firm in the league make joint decision on marketing and pricing.

As the firm / league expand, the quality of game is affected by two contrary tendencies. The two tendencies are:

1. Diminishing quality return. – The quality of law material decline as less efficient inputs are drawn in to the sport.
2. Input enthusiasm effect- the skill abilities of sport are concentrated regionally.