The grouping of stars: An application to professional sports

This paper uses a two-period model to analyze competition for high-quality labor in a professional sports market. Leagues vertically differentiate the ir products by competing for the services of a small number of stars, there by endogenizing the cost of product quality. If utility is linear or convex in the number of stars, one league successfully employs all of them. This grouping of stars results in an equilibrium market structure of either a mo nopoly or a duopoly, depending on the opportunity costs of players and the number of consumers. Market efficiency of the resulting equilibrium is then discussed. (C) 1999 Elsevier Science B.V. All rights reserved.