Rev Ind Organ (2009) 35:299–313
Revenue Sharing and Competitive Balance When
Teams are not Wage Takers
Published online: 24 October 2009
© Springer Science+Business Media, LLC. 2009
Abstract Recent papers have enriched the conventional modeling of teams’ behav-
ior 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 gen-
erally, 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.
Keywords Contest · Market for talent · Competitive balance · Revenue sharing
JEL Classiﬁcation C72 · K23 · L83
In the conventional approach to the modeling of league competition teams choose to
invest in playing talent in order to generate revenue.
Within the classic model, the home team’s revenue depends on the share of matches
won by that team.
In other papers, the team’s revenue depends on the closeness and/or
This assumption is retained by El-Hodiri and Quirk (1971), Fort and Quirk (1995), Vrooman (1995),
Szymanski (2003a,b, 2004), Késenne (2004, 2006), Szymanski and Késenne (2004), and Sandy et al.
(2006, sections 3–5).
M. Cavagnac (
Toulouse School of Economics (LERNA), 21 Allée de Brienne, 31000 Toulouse, France