1 Two-sided Network Effects in the Market for Professional Sports By

Very preliminary and incomplete This paper analyzes issues associated with network effects and two-sidedness in the market for professional sports. Teams in professional sports leagues have to compete both for players (inputs) and for fans (consumers). In this setting, two-sided network effects are important since fans are more attracted to a team with higher-quality players and, at the same time, players want to show their ability in front of a larger number of fans. Unlike previous work on two-sided markets we introduce players ’ quality as medium to affect fan’s demand so that the level of competition in the market for fans critically depends on the number of high quality players between teams: it may lessen competition due to product differentiation effect, otherwise it intensifies competition. Moreover, these effects are augmented by having positive externality loop. Also, to analyze the important of competitive balance issue in professional sports leagues we consider two types of quality effects: proportional and constant quality gap effects on fan’s utility. We show that the competitive balance depends on the relative magnitude of these quality effects. JEL Classification: L83, L14, L15