ABSTRACT

Monopolies maximize profit by raising prices and reducing output. Their ability to do so depends on having barriers preventing the entry of competitors. In a closed league, existing firms prevent competition by allowing new teams only when it increases league profits and by limiting the number of teams in each market. Lower output increases profits but creates a deadweight loss that reduces social well-being. Teams can increase profits with variable ticket pricing, dynamic ticket pricing, bundling, and various forms of price discrimination. Teams also use multipart pricing in the form of personal seat licenses to increase profits.

Unlike closed North American leagues, open leagues, such as the soccer leagues in Europe, have limited ability to exert local monopoly power due to the promotion-relegation system. Enacted in the late 19th century, the Sherman Antitrust Act places limits on monopolies and has been applied to professional sports and the NCAA with varying success. Due to a series of bizarre court rulings early in the 20th century, baseball has enjoyed a blanket exemption from antitrust laws. It used the exemption to great effect, exerting monopsony power thanks to the reserve clause long after the clause was ruled illegal for other sports.