Paul Madden

Welfare economics of "Financial Fair Play" in a sports league with benefactor owners.

With European soccer leagues in mind, a novel model of club owner objectives nests standard profit (and win) maximization, but adds benefactor behavior where owners inject personal funds to increase their team’s quality. A “generosity” parameter differentiates owners; parameter value zero equates to profit maximizers, with benefactors emerging at sufficiently positive values. The model is used to investigate consequences of Union of European Football Associations’ (UEFA) “Financial Fair Play” regulations (FFP) for the league, aimed to preclude benefactor injections. Assuming (post-Bosman) a relatively large elasticity of talent supply to the league, FFP is a poor regulatory device, creating welfare losses for fans, owners, and players.

Game Theoretic Analysis of Basic Team Sports Leagues

The article proposes a new ‘‘strategic market game’’ (SMG) approach to modeling strategic interactions between clubs in professional team sports leagues, and generalizes a basic framework used in previous literature (two clubs, fixed talent supply and club revenues that depend only on relative team qualities), to allow variable talent supply and club revenues that depend on absolute (and relative) team qualities. The new approach incorporates club talent market power (duopsony), overlooked by existing approaches; in both the basic and the more general framework, Nash equilibrium competitive balance is analyzed, with and without revenue sharing and with comparisons to existing analyses.

Supporter Influence on Club Governance in a Sports League; a “Utility Maximization” Model

Motivated by increasing supporter involvement in club governance in English football, the paper presents a simple model of a sports league in which club objectives are utility functions defined over profits, win percentages and fan (=supporter) welfare, formalising a seminal suggestion of Sloane (1971). Consequences of increased utility weight on fan welfare (capturing increased supporter involvement in governance) are unambiguously higher attendances, with more nuanced affects on ticket prices and player expenditure. The attendance affect is consistent with some limited, anecdotal data currently available from clubs with existing supporter boardroom representation. Normatively, positive profits for club owners indicate social sub-optimality.

Oligopoly on a Salop Circle with Centre

Abstract We study an oligopolistic market in which consumers located around the perimeter of a Salop circle buy either from firms around this perimeter (providing horizontally differentiated goods) or from a firm located at the centre of the circle (providing a homogeneous good). An entry-pricing game is studied. The market equilibria and social optima indicate various possible market failures, including cases in which the market is served only by perimeter firms whilst central provision would be socially optimal (in this sense, more extreme than the standard Salop excessive product differentiation). Moreover, for some parameters, the standard Salop result might be reversed.

Suppes-Sen dominance , generalised Lorenz dominance and the welfare economics of competitive equilibrium: some examples

Abstract This paper studies two quasi-orderings in the context of three simple equilibrium models; a general equilibrium model with identical consumers, a model of an artisan economy, and an education model. The first quasi-ordering is induced by Suppes-Sen dominance (or first-degree stochastic dominance) amongst utility vectors of individuals, and the second evolves from generalised Lorenz dominance (second-degree stochastic dominance) similarly applied. It is shown how Pareto-efficient competitive equilibria may or may not be Suppes-Sen optima/generalised Lorenz optima, and it is suggested that this information is valuable for welfare analysis.

Catastrophic Walrasian Equilibrium from the Non-Walrasian Viewpoint: A Three-good Macroeconomic Example

A Walrasian equilibrium is catastrophic from the non-Walrasian viewpoint if some small deviation from the Walrasian prices produces only non-Walrasian equilibrium allocations a long way from the Walrasian allocation. A precise account of this phenomenon is given for a class of three good, single household private ownership production economies.

Walrasian fixed supply conjecture versus "Contest-Nash" solutions to sports league models: game over?

Winfree and Fort (WF) recently suggested an approach to modeling basic two-team sports leagues, which requires Nash equilibrium solutions to games where investments in (not levels of) talent are the strategic variables. I comment (a) it is crucial that talent investments are the strategic variables, reworking arguments from my earlier article; (b) with nuanced but important differences from Stefan Szymanski’s conclusions regarding WF, Walrasian fixed supply conjecture solutions and the invariance principle are unlikely to emerge from this approach but Contest-Nash solutions can; (d) the long-running debate alluded to in the title of this article may have run its course.

Sports League Quality, Broadcaster TV Rights Bids and Wholesale Regulation of Sports Channels

In a complete information auction, two integrated broadcasters bid for exclusive TV-rights to a sports league (e.g. the English Premier League), with two potential externalities: receipts feed through to the two league clubs who choose player expenditures, possibly enhancing league quality and the resulting sports channel (e.g. Sky Sports); also the right’s winner either offers the channel wholesale creating a product-differentiated retail duopoly, or forecloses. Under laissez-faire, outcomes can be “quality-driven” or “rivaldriven” depending on league/broadcaster parameters and auction protocol, and foreclosure never happens. Ofcom’s suggested wholesale regulation of Sky Sports typically reduces league rights income, quality and consumer surpluses.

Keynesian unemployment as a nash equilibrium with endogenous wage/price setting : An example

Abstract A simple 3 good, 1 consumer, 1 firm model of fixed price, quantity constrained equilibrium is developed. A game is then defined on the set of (globally unique) equilibria. The consumer sets the money wage, the firm sets the money price of output (money is numeraire). Nash solutions of the game exist and may involve Keynesian unemployment but never involve Classical unemployment or Repressed inflation.

Group Inequality and Conflict

This paper presents a theoretical model to show how distributional concerns can engender social conflict. We have a two period model, where the cost of conflict is endogenous in the sense that parties involved have full control over the level of conflict they can create. Our analysis highlights the crucial role of future inequality. It is shown equality of assets or income in the current period does not stop conflict from taking place if the anticipated future inequality is significant. Further we find that the impact of inequality on conflict is not straightforward. Since conflict is costly for both groups, societies with low levels of inequality show no conflict, groups engage in conflict only when inequality exceeds a certain threshold level. Additionally the model shows that the link between inequality and conflict may be non-monotonic.