Abstract
A well-known finding in of sport economics is that differences in the winning probabilities of sport teams are determined largely by unequal market sizes and, therefore, revenue potential. Larger markets yield higher marginal revenue and thus, more units of talent being employed by the respective teams. In contrast to the existing literature, this paper presents a model with endogenous market sizes. Teams are able to choose their location at which they are based, implying a direct effect on their own, as well as on their opponent’s potential market size. This regional competition in sport leagues is analyzed in terms of overall payoff, competitive balance, and effectiveness of revenue sharing agreements for profit-, as well as for win-maximizing team behavior. It can be shown that the usually assumption of a strictly positive correlation between market size and success does not hold in general. Furthermore, evidence relating to major European football leagues is presented, indicating that a larger market does not necessarily imply more successful teams.
Published Version
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