Question

Just a few sentences is enough here.

1.Name, and briefly discuss, two fundamental economic factors which have been important drivers of growth in the market for sports in the past century.

2.Suppose that sports and movies are substitutes, and that Covid-19 & technological changes combine to movies cheaper to consume (streaming), and live attendance at sporting events more costly (contagion risk; capacity limits). How would these changes impact the markets for movies and sports?

3.Briefly name and describe two (quantitative) measures of competitive balance. Which measure do you think best captures the concept, and why?

4.Explain the link between diminishing returns and competitive balance.

5.Explain the invariance principle, i.e. why, with or without Free Agency, Babe Ruth (perhaps history’s most famous baseball player) was destined to play for the Yankees.

Answer 1

Q1) Two factors are:

(a) Merchandizing: Over the last few decades there has been an enormous increase in the merchandise related to sports. The markets are flooded with mugs, shirts, posters etc of all the teams and the star players. This has helped make sports more popular as it attracts new people and generates interest.

(b) Social media: Increased use of social media has turned sports players into big celebrities and increased direct interaction with the fans. This has helped in the growth of the sports industry.

Q2) Since movies and sports are substitute goods, an increase in the cross-price elasticity of demand is positive. Both the factors here, movies becoming cheaper and sports becoming expensive work towards increasing the demand for movies and decreasing the demand for sports.