Question

In: Economics

In North America, although sport teams have monopoly power, but they do not profit maximize. Outline...

In North America, although sport teams have monopoly power, but they do not profit maximize.

Outline reasons why they do not profit maximize on their ticket sales. Provide 5 bullet

points.

Solutions

Expert Solution

The five points for the given question are:

1. The most important factor economically real is obviously if sports team charges higher prices for the tickets lesser amount of audience is going to attend and that will affect the image of the team. Hence why sports team having a Monopoly in Northern America cannot charge hire ticket prices, to profit maximizing their ticket sales.

2. The second big reason is competition. Amongst various sports team each one of them holds a Monopoly in the market. At a time, only one big team can organise a sports, hence they all share Monopoly but they are competitive to each other and hence cannot go beyond the line to charge higher prices then the other ones are charging.

3. The third reason is market. Market has the power to not allow the sports team to organise that sports event and does holds some power over sports team. This gives a check on the sports team although having Monopoly in the market place to be in control of getting maximum profits through higher sales.

4. Anti trust laws- it is a type of of contractual activity in an industry of similar units in which there are certain rules or laws, breach of which will be considered as unlawful. Similarly in the sports industry in North America, they also have antitrust laws, which includes a limit to the prices of the tickets or the size of ticket sales, in order to maintain quality and reasonable price to the customers.

5. Talking in terms of equilibrium it also affects the situation above. When a sports person or any sports team holds a Monopoly in the market because of their talent, it generates higher excessive demand of the particular talent of either the sports person or the sports team. And soon the demands go beyond the point where marginal revenue is equal to its equilibrium wages. Hands creating a saturation point of charging the prices of the tickets or the sales of tickets, hence why even after having a monopoly, sports teams can not profit maximizing tickets sales.

Rahul Sunny answered 1 year ago
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