KNH 313 Exam 3
monopolist hire ____ workers and pay ______ wages due to ___________
1. fewer 2. lower 3. lower competitive pressure
Because we deal with monopolies we have to recognize that the _______________ for this market lies ______ the MRP curve for a ___________________
1. marginal revenue product curve 2. below 3. truly competitive market
If nike adds 20 more units of Air Jordans per additional worker that can be sold for $100 each the marginal revenue product is
20x $100 = $2,000
What fraction of athletic department revenue do ticket sales make up
25%
How long does it take for a player to gain unrestricted free agency
4-7 years of service
What is the average percentage of a team's revenue paid to a coach
5.2%
Consumer discrimination and salary discrimination was prevalent in the NBA in the _____
80s but eased towards the end of the century
Describe the representation of A. Americans and Latinos in the MLB
AA - underrep. as catchers and pitchers overrep- in outfield Latinos overrep - middle infielders
After factoring out allocated revenues, which schools do not generate profit from athletic departments
All non-bcs schools
The NCAA used to forbid schools from making distinctions between aid given to student athletes and regular students, what do they do now
Allow athlete scholarships regardless of financial need or academic merit
What is the "gentlemen's agreement" or Rozelle Rule, which came into effect after the reserve clause was banned, is it still in effect?
An agreement to not pursue players from other teams THe commissioner had unilateral power to award compensation in the form of players or draft picks to the team losing a player Rule lasted until 1992
Describe how the NCAA is a cartel in relation to a monopoly
As a monopoly, Can tell its member clubs to use their power to control output
The law of diminishing returns says firms are less willing to pay additional workers, why is that?
Because of the loss of marginal revenue product
Why do monopsonies have to pay higher prices for all items
Because there are no other buyers to compare prices with
How does the NCAA minimize expenditures on athletes
By reducing the number of employees and level of pay below the competitive level
What two inputs do organizations use to produce one output
Capital and labor
Who is usually a state's highest paid employee
Coaches at public schools often above government officials and college presidents
Why is economic discrimination prominent in monopsonies
Employers are not driven out of the market because they are the market
How was salary caps impacting the payroll between teams
Equalized payroll between teams in leagues that use salary caps unlike the MLB which doesnt use salary caps
T/F schools with better athletic programs attract a smaller application pool
False, better athletic programs attract deeper applicant pool this allows more admissions revenue or be more selective
T/F different leagues have the same requirements for free agencies
False, different leagues have different requirements
T/F the NCAA acts as an efficient cartel by allocating greater benefits to its least efficient members
False, the NCAA allocates greater benefits to its most efficient members
What two sports bring in the most money
Football and men's basketball, most other sports bring loss of profits
What is final offer arbitration and who uses it
Forces arbitrators to pick one of the proposals from the team/player to encourage parties to make a deal before arbitration MLB uses final offer arbitration
Alan Eagleson
Former NHL agent/ director of NHLPA charges with 34 counts of fraud, racketeering, and embezzlement
Who is John Nash?
He developed a model that found that bargaining power comes from a party's ability to walk away from the bargaining table
The olympic games in 776 BC Greece were used as a way to replace what?
Heroism on the battlefield due to an absence of war
What sports leagues can pursue arbitration and binding arbitration
MLB and NHL
Do MLB players have restricted free agency
MLB players do not have restricted free agency, but like NHL players they have salary arbitration
what is the formula for marginal revenue product MRP
MRW x WINS
Do bonuses count against the salary cap in the NFL
Many bonuses do, unless prorated across the length of an entire contract some bonuses may not count such as performance incentives
Whether an athletic department is profitable or not depends on accounting practices, what schools typically see a profit?
Most BCS level schools even when you do not count generated revenue
What sports leagues use salary caps
NFL NBA NHL MLS
What was a big difference between the NFL and NBA in the 2011 agreement
NFl was flushed with money, NBA struggling NBA owners won NFL owners and players both received good settlements, smaller salary cap but higher salary floor
Does the NCAA offer scholarships to division III athletics
No athletic scholarships are offered to division III
Looking at generated revenue, are most school's athletic departments profitable
No, less than 30% of schools see a profit from generated revenue
How does final offer arbitration benefit players and when are MLB players able to use it
Often leads to increase in salary players with 3 years of experience can use this
How many of the title IX prongs must a university meet
One prong
What caused the 2004-2005 owner lockout in the NHL
Owner demands for a salary cap
How was the NHL owner lockout in 2004 resolved (3)
PLayers share of hockey related revenue increases as that revenue increases player's salaries face max deal limitations escrow tax to manage salary cap limits
African americans in the NFL have been underrepresented in QB, C, and TE positions where have they been overpresented
RB, WR, CB, S
If college athletics typically lose money, why are universities eager to subsidize them?
Seen as public good financial spillovers looked at as more than just profit
What are the profits from sports programs called even though a university is a non profit
Surpluses
What league started salary caps and why did they do this
The NBA salary caps were needed to control costs as revenues sagged
What was created to avoid exploitation and enhance education and morals for student athletes
The NCAA
How is the sport player association a hybrid type of union
The SPA encompasses the unified trade skills of a craft union and the collective bargaining power of an industrial union
What happens if an owner/GM has a taste for discrimination
The demand for players of a non-discriminated group may increase leads to higher wages for that group causes negative effect financially on team, but they maximize utility
What does the collective bargaining in the sport player association deal with
The framework in which players/agents negotiate with teams DOES NOT deal with wages
What happens to players who are not eligible for free agency
They only receive a fraction of their MRP thanks to the monopsony power of clubs
How does the NCAA enforce their monopsony power over student athletes
Through transfer restrictions
T/F many want NCAA schools to have competitions that reflect a Greek Olympic ideal of amatuer competition
True, but college athletics still remains a past time not profession
T/F Player opportunities are free from discrimination in sport but not for management
True, in most evidence
proportionality
WIthin 5% each way, percentage of women participating in athletics should reflect the number of women undergrads at a university
How is a bilateral monopoly resolved?
When both sides eventually negotiate for a wage between the ideal union wage and monopsony wage
Do alumni donations contribute to athletic department revenue?
Yes, they make up about 22%
Prejudice
a feeling or emotion
industrial unions
a rebuke to harsh working conditions, often met with backlash from employers
where does the marginal expenditure curve lie
above the supply curve mirrors what we see with monopolies
APR system
academic progress rate that tracks progress towards graduation and punishes schools with low marks
profit maximizing firms
adding enough workers so that the marginal benefit equals the marginal cost
human capital depreciate with
age and inactivity
What are some other things sport unions negotiate other than salary
age limits and disciplinary power this leads to more conflict
Numerous conferences have voted to _____________ up to the cost of attendance for athletes
allow aid
restricted free agency
allows teams to match the offer of a potential signing teams with their right of first refusal
Discrimination
an action
In auto racing, bigger differences in payouts in racing work as
an incentive for better driving performance
luxury taxes
an incentive to reduce payrolls taxes distributed to general player benefits and sport growth funds and not on-paying teams
Binding arbitration
arbitrator's ruling must be accepted
Describe how the NCAA is a cartel in relation to a monopsony
as a monopsony, can use market power to control its inputs
Salary discrimination has diminished but consumer discrimination has still been seen in what sports
baseball and basketball
Why is the marginal expenditure greater than the cost of additional purchases for a monopsony
because monopsonies spend more on the marginal unit and all preceeding units
Although there is a lack of serious rival leagues, rival leagues still lead to
bidding wars for players , increasing salaries challenging monopsony power
How have big schools enhanced arenas to capture more revenue
by adding luxury boxes and selling off naming rights to venues
How are APRs calculated
by awarding a student athlete one point for remaining enrolled and one point for remaining academically eligible divide actual APR points by maximum
firms use a fixed amount of capital, how is output changed
by changing the labor input
How does the NCAA act as a cartel enforcer
by having restrictions on player benefits
Describe how the NCAA is a cartel
can drive up prices on outputs and drive down costs on inputs
How do cartels allocate the greatest share of out and profit
cartel share output and profit to more efficient members
What is an example of a diploma mill
charter and private schools that focus on athletics more than academics
3 + 2 rule
clubs could only start 3 foreigners and potentially two more who had lived in the country long enough
how do industrial unions increase wages
collective bargaining
Why has gate revenue importance decreased
conferences sign increasingly lucrative television deals
What is the most harmful type of discrimination
consumer discrimination
as athletes try to reach the top...
costs become much more severe
what are two types of unions
craft unions industrial unions
what are some negatives of unions
create inefficiency stifling employment and production
As craft unions increase wages which way does the labor supply curve shift
curve will shift left
The importance of gate revenue has ________
decreased
Lower roster limits
decreases total employment but with wages rising jobs are harder to come by but are better compensating
Roster limits have an effect on
demand and wages
What was the end result of the reserve clause
depressed wages and players taking offseason jobs to make ends meet
Cartel style monopolies (NCAA)
determine level of output that maximizes profit, allocate output and profit amongst member
if you keep adding labor the marginal revenue product curve will ______
diminish downward slop
What might level level coaches do to some groups due to inherent biases
discourages groups from playing positions
monopsony drives ______ prices paid to workers
drives down prices
IF you only count generated revenue the number of profitable athletic departments will _______
drop tremendously (less than)
where do colleges get a split of TV revenue from
either their conference or the NCAA
Studies show that wage differentials based on race have been _______ in the NFL/NBA/MLB in recent years
eliminated
physical capital is easily transferable, but human capital is..
embodied within specific persons
What are the two major issues advocated for economic discrimination
equal access to work equal pay for equal work
Profits are maximized marginal benefit _______ marginal expenditure
equals
what is economic discrimination and what are the three types
equals are treated unequally 1. employers 2.employees 3. consumers
T/F becker's theory of labor discrim. focuses on psychological-sociological root causes of discrimination
false, becker focuses on behavior rather than psychological
T/F measuring units of labor in hours is very possible in the sports industry
false, it is impossible to measure labor in hours for sports
T/F Absolute performance is easier to judge than relative performance
false, relative performance is easier to judge because subjective measures of quality are needed
T/F the NCAA is the only intercollegiate athletic regulatory body
false, the NCAA is just the biggest
What does it mean that sports markets are perfectly competitive
firms are unable to affect the market price of output
training is done in either a ________ or ___________ sense
general or specific
Unlike professional sports, distribution of revenue from athletics not TV in college athletics is _______
hardly equal
how do firms maximize profit
having marginal revenue = marginal costs
if a monopsonist wants to buy more will they pay a higher or lower price
higher price
What does a higher MRP justify?
higher wages
What were some of the perks olympic champions received besides an olive crown in ancient greece
honors, favorable marriages, free food, cash, ability to train full time almost defeated the concept of "amateurism"
What sport can women and men both compete in equally but women still have fewer opportunities
horse racing also non-drag racing
What do "regular" output supply curves measure in
hours price per hour of output
The 1980s NBA boom shows that as demand for product labor increases (increase in fan base), the value of player labor will
increase players are not being more productive, but fan base values them more
Investing in human capital can lead to
increased productivity
income effect
increased wages equals increased purchasing power workers may buy more leisure and work less due to increased wages
Specific training
increases productivity in a specific context
General training
increases productivity regardless of setting
What are three examples of owner's power on salary caps thanks to collective bargaining in the NBA
individual max for contracts based on experience 10% escrow tax on salaries decline in player share of revenue
What sports for women have fared better when looking at wage discrimination
individual sports
allocated revenues
internal transfer within the institution from sources outside of athletics to the A student activity fees, expense payments, government support
for individual sports, relative productivity matters instead of absolute productivity, what does this mean?
just be better than your opponent, even if you don't play well
Teams need ____ to maximize profits
labor
what is an example of specific train
learning a specific team's playbook
What is an example of general training
learning rules of the game how to pass a ball
During a contraction, the demand curve for player labor shifts to the ____when a decrease in wages occur
left player unions are against contraction
How do craft unions increase wages
limiting access to the union and skills and assign members to employers
General training improves skills, why is this not valuable to a team
little incentive for teams to develop raw talent if players can just move to another team
What is an example of investing in human capital
little league baseball
lockouts
management does not permit labor workers to operate
What is a negative of title IX that occurs as programs try to adjusts budgets
many men's teams have been cut to accommodate women's programs
What is a benefit a worker's wage brings to a company
marginal revenue product
more productive workers = increase in __________
marginal revenue product and labor demand curve to shift to the right
MRP = MRW x WINS what is MRP
marginal revenue product for a certain player
monopsony
market situation where there is one buyer for a good or service
what is the supply curve for a monopsony
market supply curve (mirrors what we see with monopolies)
monopolies restrict output to
maximize profits
Describe the odds of making it as a pro athlete
microscopic NCAA seniors in revenue sports have a 2% chance of making it
when a strike occurs, workers become the _______ in the labor market
monopolist
bilateral monopoly
monopoly unions confront monopsony employers
Why was the BCS born
more broadcasting money need more pressure for games money in top handful of bowls increasing to a great degree but freezing out smaller school traveling to and playing in bowls is expensive, many teams in smaller bowls lost money
How do you calculate marginal revenue product
multiply the # of units add with one more worker by the price of a single unit
What are the regulations to be an FBS member
must sponser 16 varsity sports offer at least 200 scholarships (or spend $4 million on them) average home attendance of 15,000 over a two year period for football
the NBA's luxury tax revenue is distributed to ___________ and has increased markedly
non paying teams
What are negatives of APRs
not accurate measures of academic progress vast majority of schools punished are HBCUs with minimal resources to help athletes out
MRP = MRW x WINS what is WINS in this formula
number of additional wins that can be attributed to this player
What are player associations "unions"
orgs of workers who agree to act collectively to improve wages and working conditions
bosman ruling
outlawed the 3+2 rule brought free agency to european soccer players under contract still privy to transfer fees, payment from one team to another to sign a contracted player
Low salaries in minor leagues count as
payment for training
taste for discrimination
people may act as if thet are willing to pay to assoicate with one group rather than another
In a sport context what is labor
players
What NHL players can file for arbitration
players eligible for restricted free agency arbitrators will decide between proposals in 48 hours
unrestricted free agency
players sign with any team without any compensation
How is a college scholarship an investment inhuman capital
prepares student athletes for later life either as pro athlete or a regular worker
According to becker, what happens to profit maximization because we measure through utility maximization
profit maximization may not be the main goal for certain organizations some sacrifice profit to not have to associate with a group
Which of the 3 ways that congress has provided to maintain compliance with title IX is used the most
proportionality
what are the three ways congress provides to maintain compliance to title IX
proportionality program expansion accommodation interests
the slope of the marginal cost of effort rises dramatically as
quantity of effort increases
What do union supporters believe a positive working relationship with management can foster
reduced conflict and increased efficiency
thanks to the reserve clause, If teams and players cannot agree to a new deal owners could do what
renew for one more season under the same team as the last contract
How does the UEFA discriminate against teams
requires all clubs in the EU to have eight "home grown" players developed in the nation the club resides in
north american sport labor markets all deviate in certain ways from a fully competitive model what are three examples of this
reserve clause/free agency salary suppression salary caps
during an expansion, the demand curve for player labor shifts to the _______ as an increase in wages occurs
right
frequency
right of a player to sign with any team offering a contract
What is a counterweight for free agency to keep payrolls from spiraling out of control
salary caps
What is a huge expense for athletic departments
scholarships
program expansion
school must show it has increased and continues to increase opportunities for the underrepresented gender
accommodation of interests
school must show they've met the desires of the underrepresented sex
Name an example of a craft union
screen actors guild
What is a negative of the term student athlete
seen as an invention to avoid worker's compensation claims student athletes must sign agreements denying they are being paid for athletic performance to get a scholarship
In labor markets workers ____ their services to just one employer
sell
Individual players offer their ____ to teams to maximize their utility
services
craft unions
skilled artisans coming together to prevent others coming gin to undercut prices
Does the NBA have a soft or hard cap on salary
soft cap
In auto racing, which revenue gaining method is more important prize money or sponsorships
sponsorships
What is another word for positional discrimination
stacking
In a sport context what are some examples of capital
stadiums equipment
What is Title IX
step towards gender equity in sport in the US
Why is statistical discrimination bad
stereotyping based on incomplete information danger of creating self-fulfilling prophecies
What are examples of the NCAA's academic standards
students must hit certain targets for SAT/ACT scores and high school GPAs to quality to compete as freshmen once enrolled student athletes must make satisfactory progress towards a degree after 2/3/4 years
What happens when a team falls under 930 APR
subject to penalties public reprimand loss of scholarships and practice time postseason bans lose division 1 status
as wages rise, workers are subject to ________ & _____________
substitution effect income effect
role discrimination
systematic steering of minorities to specific positions on the field and within coaching ranks
What did the reserve claues inspire players in MLB to form
the MLBPA major league baseball players association thanks to the collective bargaining agreement
Although the labor supply curve looks like a typical supply curve, what is on the horizontal axis
the amount of output provided
While athletic success increases a school's application size, what does it not increase
the aptitude of the student body (increase candidate size, but not intelligence level)
Marginal expenditure
the cost of buying "a little more" greater than the cost of additional purchases
marginal revenue product
the extra revenue generated by one worker
What revolution opened up sport for consumption and participation to the working class
the industrial revolution this upset the aristocracy
As demand and value rises for player labor the labor demand curve will shift in which direction?
the labor demand curve will shift right
Worker's Wage
the marginal cost of one more hour of labor
Why is consumer discrimination so harmful
the market does not eliminate it over time sometimes promotes it instead if it allows organizations to maximize profit harms groups discriminated against without harming those who have a taste for discrimination
rank order tournaments
the order of finish is the sole performance criterion
Regarding discrimination, what do economists typically focus on
the outcome of discrimination instead of the causes
Why does specific training benefit a team
the player is most valuable to a current team
Although the labor supply curve looks like a typical supply curve, what is on the vertical axis
the price per unit of output
What caused players to stop breaking contracts in the middle of baseball seasons
the reserve clause
human capital
the set of skills that contribute to a person's productivity
If there is an upward sloping labor supply curve what does this mean
the workers respond to higher wages by offering more hours of work to employers
Does athletic success tie in to general donations to a university
there are mixed results schools with higher academic reputations are not usually affected by performance in athletics
What is the value of each side's alternative activity during a bilateral monopoly
threat point the side with the more valuable threat point generally has more bargaining power
How does the NCAA regulate behavior and punishments
through sanctions of TV appearance bans scholarship losses postseason bans "death penalty"
generated revenue
ticket sales, media rights deals, booster money, and anything else directly as a result of athletics
What are two positives for bowl championships
tourism vehicle for cities used to keep regional teams in market
T/F expansion and contraction of leagues (establishment/disestablishment of rival leagues) affects player demand
true
T/F the substitution effect is stronger than the income effect
true higher wages = more workers supplying more labor
T/F MLB teams that integrated sooner performed better on the field
true, integration = improvement english soccer was slow to integrate but those that did tended to win more
T/F the MLB has a strike or lockout every time a CBA comes up for renewal
true, a strike has occurred before each CBA renewal all four leagues have experienced work stoppages
T/F Players are homogenous inputs
true, players are homogenous inputs
What incentivizes athletes to do their best to win in an individual sport
uneven distribution of prizes
What is one reason that unions cause owners to move jobs overseas
unions advocate for increased wages increased wages = increased costs for owners
collective bargaining
unions meet with employers to produce agreements dictating wages and working conditions
name an example of an industrial union
united auto workers
Why does Becker's theory believe less discriminatory employers will be more successful than discriminatory employers
unprejudiced employers can undercut prejudiced ones by paying higher wages to groups being discriminated against this cuts into the profit margin of prejudiced employers
The labor supply curve has an _____ slope and looks like a typical supply curve for any other product
upward
statistical discrimination
using "group" averages to judge individual productivity levels
MRP = MRW x WINS what is MRW
value of an additional win to a team
What did the USWNT file litigation over
wage discrimination
Monopsonies suppress _______ and lower employment as compared to true competitive markets
wages
Law of diminishing returns
we start losing marginal revenue product by adding new workers firm is less willing to pay these additional workers
what typically dictates where a contractzone is
whatever leverage one party holds over the other
contractzone
when both teams and owners meet in the middle for terms that are acceptable for both parties
When does optimal club size occur
when marginal benefit of admitting a new member equals the marginal cost
When do monopsonists stop hiring workers
when marginal revenue product equals marginal expenditure
labor strike
workers remove labor input from the production process
Substitution effect
workers substitute leisure for work, but it costs them wages, prompting many to work more for higher wages
Do small schools get the same amount as bigger schools in tv revenue splitting
yes small and large schools get the same cut
Are grants a part of an athletic departments budget? If so how much
yes, 14%