ABSTRACT
This chapter reviews some of the basic economic models and explains why sports markets behave as they do. Supply and demand are among the simplest but most powerful tools in the economist's arsenal. The chapter explores the basic model of supply and demand to explain the relationship between prices and quantity, such as why collectors pay much more for Mickey Mantle baseball cards than for Hank Aaron baseball cards, even though Aaron had better career statistics. It describes how teams use their most fundamental input—player talent—to generate wins, and how the law of diminishing marginal returns impacts teams' decisions on how to allocate that talent. The chapter provides the difference the various market structures that are present in the sports industry and apply the appropriate model to analyze such questions as why the Chicago White Sox do not lower their ticket prices when doing so would allow them to sell out like their neighbors, the Chicago Blackhawks.
