This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network e¤ects operate from the fan market to the sponsor market, while positive or negative network e¤ects operate from the sponsor market to the fan market. Clubs react to these network e¤ects by charging higher (lower) prices to sponsors (fans). The size of these network effects also determines the level of competitive balance within the league. We further show that clubs benefit from stronger combined network e¤ects through higher profits and that network externalities can mitigate the negative effect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities.
Static and dynamic games are important tools for the analysis of strategic interactions among economic agents and have found many applications in economics. In many games, equilibria can be described as solutions of polynomial equations. In this paper, we describe state-of-the-art techniques for finding all solutions of polynomial systems of equations, and illustrate these techniques by computing all equilibria of both static and dynamic games with continuous strategies. We compute the equilibrium manifold for a Bertrand pricing game in which the number of equilibria changes with the market size. Moreover, we apply these techniques to two stochastic dynamic games of industry competition and check for equilibrium uniqueness.
We compare asset prices in an overlapping generations model for incomplete and complete markets. Individuals within a generational cohort have heterogeneous beliefs about future states of the economy and thus would like to make bets against each other. In the incomplete-markets economy, agents cannot make such bets. Asset price volatility is very small. The situation changes dramatically when markets are completed through financial innovations as the set of available securities now allows agents with different beliefs to place bets against each other. Wealth shifts across agents and generations. Such changes in the wealth distribution lead to substantial asset price volatility.
