PROBLEM SET 2
1. Is it fair to fans when teams create a bundle of more popular games and less popular games that must be purchased together?
2. An athletic director was once quoted as saying that he felt his school spent too much on athletics but that it could not afford to stop. Use game theory to model his dilemma.
3. Why can’t Premier League teams like Arsenal exert as much monopoly power as the NFL’s Chicago Bears?
4. Suppose the typical Buffalo Bills fan has the demand curve for Bills football games:p=100−10G, whereGis the number games the fan attends.
- If the Bills operate in a perfectly competitive market and MC 0, what are the equilibrium price and quantity of tickets?
- Suppose the Bills are a monopoly and that marginal cost is the same as in part (a). What are the equilibrium price and quantity. What are the equilibrium price and quantity if the Bills can perfectly price discriminate?
5. Suppose most fans prefer Sunday afternoon baseball games (regardless ofopponent) to all other types of games. Describe two pricing strategiesthat a team could use to increase profits based on this difference in demand.
6. Suppose, as an owner, you could leave the highly competitive league (in terms of closeness of contests) that you currently play in and enter a league that assured that your team would never lose again. Would you want to do so? Why or why not?
7.Explain how the law of diminishing returns provides a natural tendency toward competitive balance.
8.Suppose the winning percentages in a six-team (teams played each other twice) league were as follows at the end of the season—Team A: 0.750, Team B: 0.600, Team C: 0.500, Team D: 0.500, Team E: 0.400, Team F: 0.250. Compute the Ratio for a measure of competitive balance.
9. What is the difference between sports leagues with an open system and those with closed system?
10.When might leagues have an incentive to exclude the best teams or to handicap them?
11. How do open systems try to maintain competitive balance?
12. How do closed systems try to maintain competitive balance?
13. Use the microeconomic model to explain how competitive balance is maximized when small teams choose to maximize wins and large teams choose to maximize profit.
14. Why do European soccer leagues have high levels of within-season competitive balance but low levels of between-season competitive balance?
15. Suppose that over a period of twenty years, the distribution of championships in two different leagues (each league has 10 teams) was the following:
League 1:
A=2, B=0, C=5, D=1, E=2, F=4, G=0, H=1, I=1, J=4
League 2:
A=6, B=2, C=2, D=2, E=2, F=3, G=1, H=1, I=1, J=0
Use the HHI measure of between-season competitive balance to find which league is more competitive.