Raymond D. Sauer

The state of research on markets for sports betting and suggested future directions

Studies of markets for sports betting can be a rich source of knowledge on the process of price formation and the information content of market prices. But recent research in this field examines questions of a technical nature, questions of interest mostly to active participants in the literature. A change in direction, motivated by creative use of the efficiency hypothesis, may deliver insights that would be valuable to the profession in general. Some preliminary analyses along these lines are presented in the hope of stimulating new lines of inquiry in the field.

The Utility of Sport and Returns to Ownership Evidence From the Thoroughbred Market

The rate of return to investment in thoroughbred racehorses is widely believed to be negative on average. In a world of fully informed market participants, this implies that ownership of a racehorse is motivated in part by nonfinancial attributes, perhaps a taste for sport. This article presents simple models of the utility derived from sporting competition. The models differ in their implications for the rate of return to racehorse ownership and its variation with the level of talent. Evidence from thoroughbred auctions and racing earnings are used to test between the models.

The Aggregate Relation between Profits and Concentration is Consistent with Cournot Behavior

An important and controversial stylized fact inindustrial organization is the positive correlationbetween industry profit and concentration. Oneinterpretation of this finding is based on thetheories of Chamberlin and Stigler, which imply thatconcentrated industries facilitate collusion. Butnon-cooperative profit maximizing behavior can alsogenerate a positive correlation. This paperpresents an equilibrium model of oligopoly whichnests the behavioral assumptions of Bertrand,Cournot, and Chamberlin. Simulations of the modelunder the Cournot assumption yield regressioncoefficients for the profits-concentration relationthat are very close to the estimated coefficients inthe literature.

A principled approach to the stranded cost issue

The case against stranded cost recovery is a strong one, whether investments in generation were efficient ex ante or not. This is the unavoidable conclusion once the proper roles of the regulator, utilities, investors, and consumers in the regulatory system of the past century are clearly identified. It is improper and inefficient for government to sanction the mistakes of the private sector by taxing consumers in order to rescue producers. This is precisely what stranded cost recovery does. Denial of stranded cost recovery is consistent with the role of the regulator as a substitute for salutary market forces and, indeed, is required by it.

Book Review: Fans of the World, Unite! A (Capitalist) Manifesto for Sports Consumers

Stephen F. Ross and Stefan Szymanski Fans of the World, Unite! A (Capitalist) Manifesto for Sports Consumers Stanford University Press, 2008. 232 pp. Raymond D. Sauer, Clemson University, Clemson, SC, USA Stephen F. Ross and Stephan Szymanski have made numerous contributions to the economic analysis of sports over the past two decades. Their research on alternative organizational forms of sporting competition and the analysis of market power issues in sport makes them well suited to offer an analysis of alternative models of the operation of North American professional sports leagues. Their recent book Fans of the World Unite! considers the general question of how our sports leagues might be optimally designed. Fans! is oriented toward a popular audience and rather breezily delivers a wide-ranging application of economics to a variety of issues in the sports world. At its core, Fans! is a critique of the closed league system of North American professional sport and a call for its reform. Although the critique is both well informed and deserved, the true measure of this book, as its title implies, rests on the strength of the argument for reform. Ross and Szymanski correctly characterize the prototypical North American league as a joint venture, with owners of the existing teams jointly responsible for the operational decisions of the league. Because participation in the competition by a new entrant requires agreement of the existing competitors, the league can be viewed as an essential facility in the market for professional sport. Control of access to the essential facility by the teams themselves makes North American sports leagues especially durable cartels, particularly in view of their relatively tolerant treatment by antitrust authorities. Nevertheless, their durability exists despite the fact that as cartels they are beset by inefficiencies associated with this organizational form. Ross and Szymanski present an extensive array of evidence to buttress this point. As a cartel then, albeit an inefficient one, the North American league structure fails a basic optimality test on two criteria. First, Ross and Szymanski argue that pro sports leagues exploit their market power on a number of margins—from exorbitant Journal of Sports Economics 11(5) 580-583 a The Author(s) 2010 Reprints and permission: sagepub.com/journalsPermissions.nav http://jse.sagepub.com