Justin Rusconi
Discussion Questions Chapter 3
1. The New York Yankees complain that revenue sharing compensates teams that do not attempt
to win since small-market teams are paid regardless of performance. Although this may be a
disincentive to invest in talent, revenue sharing is designed to foster competitive balance and
preserve general league interest.
4. Spending $15 million a year on stadium naming rights depends on the anticipated return on
investment. If the sponsorship increases brand awareness and leads to significant revenue
increase, it could be a bargain. However, if other marketing channels offer more appealing
returns, it may not be the best use of funds.
Chapter 3 Problems
3.2. NFL attendance is downward-sloping in its demand, so increased ticket prices decrease
attendance. As parking and food prices rise, demand falls since it is now more costly to attend.
As games become pay-per-view, demand rises since more people opt to see it live. A new local
team decreases demand since there is competition, and a severe decline in team quality also
decreases demand. Lengthening the season disperses interest, reducing demand for individual
games. (Graph on my other page)
3.5. For the advertising issue, the demand function is Q=1,000−5p
Substituting p=175, Q = 125 ads per team. Since there are 20 teams, total
demand is 125*20 = 2,500 ads.
Discussion Questions Chapter 4
3. To start a rival basketball league, I would place high importance on signing star players,
differentiating the league's style of play, and pursuing untapped markets. Higher salaries or
higher percentages of team ownership could be used to lure top players. International focus or
rule modifications to make the game more exciting (e.g., shorter shot clock or four-point shots)
could differentiate the league from the NBA. In addition, obtaining good media deals and digital
streaming agreements would be crucial to winning a following.
Chapter 4 Issues
4.2. If I were Commissioner of the NHL, I would answer that the league is not a monopoly
because there are many other hockey leagues around the globe, such as European leagues and
North American minor leagues. The NHL only competes with other sources of entertainment,
such as other sports leagues and streaming media, for consumer dollars.
Even if it is a monopoly, it is a natural monopoly since the exorbitant expense of operating a
professional hockey league means that it is inefficient to have more than one league. One strong
league provides stability, competitive balance, and the best possible level of play for the good of
both players and fans.
4.4. In the case of football ticket demand, when the team acts competitively,
it will equate price to marginal cost (MC = 0). From the demand function
Q=100,000−100p, setting p=0 gives selling 100,000 tickets. When the team
acts as a monopoly, we have the marginal revenue function
MR=1,000−0.02Q. Setting MR = MC (0), solving for Q gives 50,000 tickets.
Substituting this into the demand equation, the monopoly price is $500. The
monopoly closes off quantity to increase prices and maximize profits, in
comparison to a competitive market.
4.5. The partial antitrust exemption was vital to the NFL since it enabled the league to
collectively negotiate television rights, stopping clubs from seeking individual deals. It provided
equal revenue sharing, making it possible for small-market clubs to be competitive. The
exemption also made mergers possible, like the NFL-AFL merger, which helped make the
league stronger and nationally recognized.
