Sporting events as natural monopolies

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Historical monuments and geographical traits particular to any country are natural monopolies of that country or region. For example, Taj Mahal in India cannot be found elsewhere in the world, India holds monopoly over Taj. Similar can be said about, grand canyon in U.S.A and many more. In fact, each and every nation holds natural monopoly over its historical monuments and geographical characteristics.

According to economists, sport and its event naturally qualify as monopolies. Be it sports league or its broadcasters all of them exhibit this natural trait. An activity is said to be a natural monopoly if the production can be more efficiently carried out by a single firm. This is because, If the production is carried out by more than one firm, the cost of production of event goes high and any competitive market for the activity concerned would naturally degenerate into monopoly.

Imagine two cricket leagues running parallel to each other in our nation. One of them would naturally degenerate in to a substandard one because it would not have the same quality of players as the other and people tend to incline more towards the league with more number of quality players. Players playing for one league will be bound in contract with it and will not be able to offer their services to the other. In case, players are not bound by any sort of contract and are able to play for both the leagues, then the two different leagues will project two different champion which will give rise to the demand of a new league in order to decide the eventual champion. Now, This new found league will be given more importance than the other two. That’s how sporting leagues are bound to eventually degenerate into monopoly.

Same can be said for the eventual champions of the league. Bigger teams with more purchasing power are able to spend more in pursuit of the top ranked and most sought after players and gain competitive advantage by hiring the services of the topmost players. As a result of which, the leagues are dominated by few teams and the championship is circulated between these few teams every season. Rarely it happens that a team, not from the dominant bracket, wins the championship. This is very evident in the dominance of Bayern Munich over Bundesliga and big guns like Real Madrid and Barcelona over La Liga.

It is not possible for new firms’ to enter the industry and supply an identical ‘product’, such as a duplicate FA (Football Association) Cup competition. In consequence, broadcasters who gain rights to these events are monopoly suppliers to their viewers. Now monopolies in general restrict supply and raise prices to levels which exploit consumers and are not socially efficient. It becomes difficult for a new broadcaster entering in the market to provide the content of  the same quality as  the existing broadcaster with lesser subscription fee. In the case of broadcasting in the UK, the emergence of satellite television has provoked a price war for the right to monopolize sporting rights, with monopoly pricing passed off to the consumer via subscription charges.

Establishment of association to look after monopolistic traits and unfair advantage in the market has become necessary. Earlier facilities like LPG, Electricity, Telephone qualified as natural monopolies but, not any more. Technological innovation and advances have possibly destroyed their monopolistic trait. This monopolistic behavior of the sports industry can also be destroyed through technological innovations in future.

Author – Saurav Arora – MBA Sports Management – Symbiosis School of Sports Science (Pune)

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