Academic journal article International Journal of Sport Finance

The Behavioral Economics of Competitive Balance: Theories, Findings, and Implications

Academic journal article International Journal of Sport Finance

The Behavioral Economics of Competitive Balance: Theories, Findings, and Implications

Article excerpt

Introduction

The concepts of competitive balance (CB) and the uncertainty-of-outcome hypothesis (UOH) have been highlighted as distinctive features of the economics of sport from the beginning of sport economics research, pioneered by Rottenberg (1956) and Neale (1964). Overall, the hypothesis suggests that an increasing outcome uncertainty of games (short-term), sub-competitions (mid-term), or leagues over time (long-term) increases (marginal) utility of fans and therefore the demand for sports (for tickets/ stadium attendance or broadcasts).1 As such, competitors in sports markets are in need of each other in order to provide an economically viable product. Moreover, they not only need to allow their competitors to survive, they also have an individual as well as a common incentive to preserve the competitiveness of their competitors (Rottenberg, 1956). This CB argument serves as a main pro-competitive justification in the US to defend agreements otherwise prohibited by antitrust laws (Mehra & Zuercher, 2006). Also in Europe, involved parties have brought forward the CB defense in virtually all competition policy cases on a community level (for a case overview, see Budzinski, 2012). Surprisingly, however, despite the prominence and relevance of the UOH for professional sports worldwide, decades of empirical research have not been successful in establishing clear evidence for the importance of outcome uncertainty for stadium attendance and TV audiences.2

Most studies analyzing the potential impact of short-term uncertainty on stadium attendance found either no significant effect (e.g., Benz, Brandes, & Franck, 2009; Forrest & Simmons, 2002, 2006; Szymanski, 2001) or an effect not supporting the UOH (e.g., Buraimo & Simmons, 2008; Czarnitzki & Stadtmann, 2002; Feddersen, Borcherding, & Maenning, 2006; Pawlowski & Anders, 2012; Pawlowski & Nalbantis, 2015; Peel & Thomas, 1992) while only few papers found support for the UOH (e.g., Knowles, Sherony, & Haupert, 1992; Rascher, 1999). Moreover, while studies focusing on TV demand provide comparably more support for the UOH, even those studies struggle in providing clear evidence for the importance of short-term uncertainty across settings.3 Although there are fewer empirical studies explicitly examining the impact of long-term uncertainty on stadium attendance or TV viewership, the available evidence contradicts the UOH since a (slightly) increasing imbalance, like in the top European football leagues (Pawlowski, Breuer, & Hovemann, 2010), has been accompanied by increasing attendance in the stadiums (Flores, Forrest, & Tena, 2010). Also with respect to mid-term uncertainty, evidence is mixed. While a significant positive effect was often detected if a team still had a chance to contend for the championship (Jennett, 1984; Pawlowski & Anders, 2012; Pawlowski & Nalbantis, 2015; Scelles & Andreff, 2015; Scelles, Durand, Bonnal, Goyeau, & Andreff, 2013) or to earn promotion (Forrest & Simmons, 2002; Scelles et al., 2013), neither the chance to avoid relegation (Jennett, 1984) nor to qualify for the UEFA Champions League (Pawlowski & Anders, 2012) was found to be of any apparent importance to consumers.

In summary, the existing empirical literature displays "a lack of certainty about outcome uncertainty" (Leach, 2006, p. 117) in professional sports and rather suggests a rejection of the UOH in many settings (Coates, Humphreys, & Zhou, 2014). What remains unclear is whether this lack of evidence is a result of the UOH just being wrong (or less relevant as suggested by Szymanski, 2006) or the fact that traditional economic models regularly rely on strict and (in reality) hardly observable assumptions, in particular regarding the behavior of the agents. In this regard, to better understand the beneficial effects of CB and uncertainty of outcome for fan utility and fans' behavior, we might need to move away from simplistic notions of perfect information, perfectly rational behavior, and textbook-level microeconomics. …

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