ECON 4060 Exam 3

In Alston v. the NCAA, the supreme court ruled against the NCAA. Justice Kavanaugh wrote the majority opinion and refuted the NCAA's argument that:

Part of the quality of college football is that players are amateurs.

Suppose the NFL and the players' union are bargaining over wages. The players' bargaining power is equal to 3/4. The total surplus at the competitive amount if talent is equal to 200. The wage at which the players get all the surplus is 120 and the wage at which the league gets all the surplus is 40. According to the model presented in class, the collectively bargained wage will be:

100

Suppose the NFL and the players' union are bargaining over wages. The players' bargaining power is equal to 3/4. The total surplus at the competitive amount if talent is equal to 200. The wage at which the players get all the surplus is 120 and the wage at which the league gets all the surplus is 40. According to the model presented in class, the collectively bargained player surplus will be:

150

Suppose a player has a MRPL equal to 10 million for whichever team he signs with. That player is a free agent and has a monopoly over their talent. There are two teams bidding on him. The player thinks team 1 has the best chance to win a championship, so he values going to that team at 2 million, while he values going to the other team at 1 million. The equilibrium is that the player signs for:

9 million

Which of the following are examples of vertical integration in sports broadcasting markets?

A distributor (e.g., cable company) having ownership in a Regional Sports Network (RSN). A league having ownership in its own broadcast network (e.g., NFL Network). A single team having ownership in a broadcast network.

Which of the following would shift the labor supply curve for running backs in the NFL:

A rule change that says the players are eligible for the NFL draft immediately after high school. A new study that comes out that says CTE (i.e., brain damage from blows to the head) is not as prevalent in Running Backs as was previously thought. A new professional football league forms which competes for players.

Consider the 2 team model of competitive balance presented in class. Which of the following policies would impact competitive balance in the long run according to the model?

A salary cap set below the equilibrium MC. A luxury tax where teams that have a win percentage above Y are taxed X% of the revenue and that money is given away to charity.

The Krautmann method (1999) for calculating player production:

Assumes that the free agent markets represents a situation where players are paid their value.

Moral Hazard is:

Behaving risky when you are protected against risk.

Suppose the market for starting pitchers in MLB is perfectly competitive. Also suppose that the MLB invests in programs in South America and the Caribbean to scout potential starting pitchers that they could bring to the US. At the same time, starting pitchers' role has been diminished due to pitch counts. Assume everything else stays the same. As a result, starting pitchers' salaries will:

Decrease

If fans are biased against a particular group in a competitive labor market, then all else equal, wages will be:

Equal to MRPL for that group.

Besides some short fluctuations, MLB players' wages have steadily increased over time. Mid-century, the league argued that this means there is no need for a players' union. True/False: the increase in wages means that the league is not exercising their market power.

False

If players that belong to one group are being paid less compared to others, then the owners must be biased against that group.

False

Comcast not distributing NBC Sports Philadelphia to satellite TV providers is an example of:

Foreclosure.

Why would regulators be concerned with a league owning its own network?

If the league uses their ownership of a network to extract higher payments for their broadcast rights from other networks (or, in the extreme, exclude other networks altogether).

Consider the model presented in class. Suppose the labor market in MLB is perfectly competitive. The players are considering forming a surplus maximizing union. If they unionize, all else equal, their wage will:

Increase

Suppose the market for shooting guards in the NBA is perfectly competitive. Also suppose that the emphasis on three point shooting in the NBA over time has resulted in an increase in the relative impact of point guards on the success of teams. At the same time, the change in the NIL rules has resulted in point guards staying in college longer. Assume everything else stays the same. These two changes result in the wage for point guards to:

Increase

Suppose we are measuring the competitive balance in the NHL using the HHI for championships. Tampa Bay has won back-to-back championships. If Tampa Bay wins the Stanley cup again this year, the HHI will:

Increase

Suppose that the league acts as a monopsonist and the players compete for jobs (i.e., there is no union). The players are considering unionization, which means the the union/league collectively bargain over wages and employment. According to the model presented in class, all else equal, forming the union will:

Increase the amount of talent hired.

Historically, when Major League Baseball has faced competition from other leagues, the wages of the players have

Increased

In what ways did or does the NCAA act as a monopsonist in the labor market?

Limits movement of players across programs. Limits wages paid. Limits employment (scholarships).

Consider the two team model of competitive balance presented in class, where one team has a higher demand curve (and thus, higher marginal revenue curve) because it is located in a larger market. Suppose the team in the smaller market signs a new TV deal with a RSN, increasing their revenue. Everything else remains the same. As a result, what will happen to the competitive balance in the 2 team league?

More competitive

In which of the following leagues was the implementation of free agency a result of antitrust litigation (either directly or indirectly):

National Basketball Association NHL NFL

Suppose that the league acts as a monopsonist and the players compete for jobs (i.e., there is no union). The players are considering unionization, which means the the union/league collectively bargain over wages and employment. According to the model presented in class, all else equal, forming the union will:

Not enough information to determine what happens to the wage.

A monopsony is a situation in which there is:

One buyer

Scully (1974) finds that:

Players are paid less than their MRPL

How does (did) the NCAA mantain its collusion?

Punishes programs who violate rules (e.g., player payments).

One criticism of the moneyball arugment is:

Revenue, and therefore productivity, may be related to factors other than wins.

Which of the following is evidence of monopsony power in sports leagues:

Rules limit the number of players for each team. Players' rights are initially allocated via a draft (i.e., players' rights are chosen by the team). Wages are restricted (e.g., through salary caps).

The "moneyball hypothesis" is that:

Some players are being underpaid relative to their true productivity and some players are being overpaid.

Consider the two team model of competitive balance presented in class, where one team has a higher demand curve (and thus, higher marginal revenue curve) because it is located in a larger market. Suppose the league signs a new TV deal and the two teams split the revenue equally (increasing their MR curve by the same amount). As a result, competitive balance will:

Stay the same

The following were mentioned in class (and used by the NCAA) as possible social benefits of NCAA collusion:

Subsidizing other `non-revenue' sports. Maintaining competitive balance. Protecting amatuerism. Maintaining equality of `wages' across players.

Which of the following are reasons why players may be paid less than their MRPL?

Teams don't take into account spillovers. Discrimination. Teams have market power and design rules to depress wages. There is competition among free agents.

The market-based approach to identify discrimination in sports is:

Testing whether or not teams with players that belong to a possibly discriminated group are more successful.

In class, we define the marginal product of labor as:

The additional wins (W) for a small change in talent (L).

In a labor market where there is a monopsonist on the demand side and competition on the supply side:

The equilibrium talent (labor) hired will be less than the equilibrium talent hired in a perfectly competitive market. The equilibrium wage will be less than the equilibrium wage in a perfectly competitive market.

Krautman and Donley (2009) find that:

The identification of shirking depends on the measure of player production that is used.

Which of the following would shift the labor demand curve for NHL defensemen?

The league expanding by 2 additional teams. A rule change that makes the game more offensive (making defensemen less valuable). A new TV deal that increases the total revenues earned by each team. The league allows the players to play in the olympics, which increases the interest in the NHL among fans.

If the league sets and enforces a salary cap above the competitive wage level, then:

The talent hired will be equal to the competitive level.

If the league sets and enforces a salary cap below the competitive wage level, then:

The talent hired will be less than the competitive level.

The Noll-Scully measure of competitive balance measures:

The variation in the winning percentage across teams.

Suppose there is a monopsonist league on the demand side and competition from players on the supply side. At the equilibrium wage:

There is an excess demand for talent.

Suppose the market for offensive linemen is perfectly competitive. Also suppose that the NFL signs a new lucrative TV deal for its "Sunday Ticket" package, increasing each team's revenue. At the same time, health concerns (CTE) have lower preferences for playing in the NFL for lineman. Nothing else changes. As a result of these two changes, salaries for offensive lineman will:

Unable to determine

The intercept effect of wage discrimination is:

When certain groups of players are paid less at all levels of productivity.

The slope effect of wage discrimination is:

When certain groups of players are paid less for each additional unit of productivity.

Which of the following are examples of moral hazard in sports:

When players sign long term contracts, they reduce their effort. Due to video review, referees no longer are 100% responsible for their calls, so they are less likely to make the right call. Pitchers in the American League (where they don't have to bat) are more likely to hit batters (HBP) than in the national league.