Get access

THE EFFECT OF GATE REVENUE SHARING ON SOCIAL WELFARE

Authors

  • HELMUT M. DIETL,

    1. Dietl: Professor of Services- and Operations Management, Institute of Strategy and Business Economics, University of Zurich, Switzerland. Phone +41 (0)44 634 53 11, Fax +41 (0)44 634 53 01, E-mail helmut.dietl@isu.uzh.ch
    Search for more papers by this author
    • *

      This is a revision of a paper presented at the Western Economic Association International 82nd annual conference, Seattle, July 3, 2007. The authors are grateful for the comments and suggestions made by Dennis Coates, David Forrest, Egon Franck, Martin Grossmann, Liam Lenten, Robert Simmons, Stefan Szymanski, and two anonymous referees. Responsibility for any errors rests with the authors.

  • MARKUS LANG

    1. Lang: Research Associate, Institute of Strategy and Business Economics, University of Zurich, Switzerland. Phone +41 (0)44 634 53 17, Fax +41 (0)44 634 53 01, E-mail markus.lang@isu.uzh.ch
    Search for more papers by this author
    • *

      This is a revision of a paper presented at the Western Economic Association International 82nd annual conference, Seattle, July 3, 2007. The authors are grateful for the comments and suggestions made by Dennis Coates, David Forrest, Egon Franck, Martin Grossmann, Liam Lenten, Robert Simmons, Stefan Szymanski, and two anonymous referees. Responsibility for any errors rests with the authors.


Abstract

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)

Ancillary