How Many Football Teams Should There Be?
Davidson, Sinclair, Review - Institute of Public Affairs
Competition is good for consumers-it leads to lower prices and better quality, with less efficient firms exiting the industry. Sports, apparently, are an exception to that rule. Consumers are better off when teams compete on the playing field, but not off-field. Open slather competition off-field, we are told, would result in a small number of 'super-teams' that dominate the league and undermine consumer satisfaction. The 'solution' is to allow sporting associations to form cartels. The Australian Football League (AFL) is such a cartel.
In principle, the AFL and its constituent clubs provide an on-field spectacle that results in high attendance at games, greater membership of clubs, greater media ratings, greater merchandising opportunities, and greater industry profits. The objective of the sports cartel-like any cartelis to grow the market, and ensure that weaker teams (firms) do not fail.
But just how competitive is the AFL competition? A well-known measure of competition is the Herfindahl Index where the market shares of firms are used to measure the extent of industry concentration. …