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THE EFFECT OF GATE REVENUE SHARING ON SOCIAL WELFARE
Author(s) -
DIETL HELMUT M.,
LANG MARKUS
Publication year - 2008
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2007.00090.x
Subject(s) - league , club , revenue sharing , revenue , economics , balance (ability) , counterintuitive , microeconomics , welfare , contest , social welfare , economic surplus , public economics , market economy , finance , medicine , philosophy , physics , epistemology , astronomy , political science , law , physical medicine and rehabilitation , anatomy
This paper provides a theoretical model of a team sports league based on contest theory and studies the welfare effect of gate revenue sharing. It derives two counterintuitive results. First, it challenges the “invariance proposition” by showing that revenue sharing reduces competitive balance and thus produces a more unbalanced league. Second, the paper concludes that a lower degree of competitive balance compared with the noncooperative league equilibrium yields a higher level of social welfare and club profits. Combining both results, it concludes that gate revenue sharing increases social welfare and club profits in our model. ( JEL L83)