Mark Armstrong and Steffen Huck
This survey chapter discusses nonstandard, or “behavioral,” approaches to firm behavior. It presents evidence that firms (or experimental subjects playing the role of firms) sometimes depart from the profit-maximizing paradigm. Section 9.2 discusses the related issues of imitative behavior by firms and concerns for relative (not absolute) profit, which can make an oligopolistic market more competitive than the orthodox theory suggests. Other forms of social preferences—a desire for vengeance if a rival cheats on a collusive agreement, say—are presented in section 9.3, which argues that they may help sustain collusive agreements. Various kinds of satisficing behavior are discussed in section 9.4, which shows how imperfectly optimizing firms may end up with greater profits than their profit-maximizing counterparts. Section 9.5 discusses the impact of overoptimism by entrepreneurs and managers, the imitation of irrational behavior by profit-maximizing firms, and the benefits of including fixed costs in pricing decisions.
Helmut Dietl, Egon Franck, Martin Grossmann, and Markus Lang
This article describes how the theory of contests is applied to professional team sports leagues. It presents the traditional Tullock contest and explains some basic properties of the equilibrium. It then addresses the applications of contest theory in sports. It shows how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. The relationship between competitive balance and social welfare is considered. Finally, it illustrates why many clubs tend to “overinvest” in playing talent in many team sports leagues. It is noted that an exclusive focus on competitive balance may result in inefficient policy conclusions. Due to the contest structure, team sports leagues carry the risk of over-investing in playing talent. The contest theory is a suitable instrument to analyze team sports leagues from a theoretical point of view.
Eva Marikova Leeds and Michael A. Leeds
This article investigates the theory and application of event studies in sports. It briefly explains what event analysis is, when it is appropriate, and what it does. It also presents a brief history of event analysis in the finance literature. It then discusses how to perform an event analysis. It presents both the standard methodology from the finance literature and an approach that sports economists are likely to find more intuitively appealing. Many papers that have applied event analysis to the realm of sports are summarized. An event analysis requires a clearly identified incident that takes place at a well-identified moment in time. It has illustrated that event analysis is a potentially valuable econometric tool. However, it has not been extensively employed in sports settings and, when used, it has often been imperfectly applied.
Hans-Theo Normann and Wieland Muller
This chapter assesses the scope and the specific contribution of laboratory experiments for antitrust. It reviews experiments that have addressed specific antitrust issues, problems, and institutions. The chapter mainly covers experimental studies on collusion (tacit and explicit, conscious parallelism) and exclusionary behavior (predatory pricing, foreclosure, exclusive dealing and bundling).
Young Hoon Lee
This article presents an extensive discussion of stochastic frontier “effects” models, which analyze factors influencing efficiency. The recent literature on team sports efficiency is also addressed. It offers an overview of the stochastic frontier model and equations for general models. It then compares various models that may be useful in analyses of determinants of efficiency and the effects models. The methodologies for inference within team efficiency estimation are explained. Additionally, a more detailed discussion of frontier models with time-varying efficiency is shown. The confidence interval from the percentile bootstrap should be precise enough for panel data with sufficiently large time-series observations because a bias problem is less likely. The discussion of the selection of input variables revealed that team playing talents can be decomposed into positional playing talents that have different roles in the process of producing output (producing wins).