Revenue Sharing and Competitive Balance When Teams are not Wage Takers

Revenue Sharing and Competitive Balance When Teams are not Wage Takers Recent papers have enriched the conventional modeling of teams’ behavior through a game theoretic background at the competition level (introducing a contest success function). We take a step forward and consider contest on the talent market as well. Each team takes into account the fact that the price to be paid recruiting talent is a function that depends on both its own demand and the demands from the rival teams. For the two-team model, we show that the removal of the assumption that teams are price takers implies that the invariance proposition only survives if the price-function for talent is linear increasing. The extension to the n-team model shows that this result no longer holds; in fact, revenue sharing improves the competitive balance. More generally, an improvement in competitive balance is the most likely if one rules out the possibility of a very convex price-function. In addition revenue sharing can reduce the economic inefficiency of teams’ behavior, and so profits may increase. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Revenue Sharing and Competitive Balance When Teams are not Wage Takers

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-009-9230-3
Publisher site
See Article on Publisher Site

Abstract

Recent papers have enriched the conventional modeling of teams’ behavior through a game theoretic background at the competition level (introducing a contest success function). We take a step forward and consider contest on the talent market as well. Each team takes into account the fact that the price to be paid recruiting talent is a function that depends on both its own demand and the demands from the rival teams. For the two-team model, we show that the removal of the assumption that teams are price takers implies that the invariance proposition only survives if the price-function for talent is linear increasing. The extension to the n-team model shows that this result no longer holds; in fact, revenue sharing improves the competitive balance. More generally, an improvement in competitive balance is the most likely if one rules out the possibility of a very convex price-function. In addition revenue sharing can reduce the economic inefficiency of teams’ behavior, and so profits may increase.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 24, 2009

References

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