Wednesday, July 12, 2006

On joga bonita (4)

The World Cup is over, and I plan this to be my final piece on football (that is, soccer) for a while. The first post discussed whether football is Islamic and various predictions. The second post argued that football might not go well with the American way of life because the better team may not always win. From this, you might expect that football would have more upsets. But the third post noted that, contrary to expectations, football is dominated by a few big teams, whether at club or international level. So, what gives?

This letter to the Economist may explain why European football leagues are dominated by a few clubs:

The (US) National Football League retains revenue-sharing and caps on salaries to keep smaller teams competitive and begs for taxpayer funding to build new stadiums. European soccer clubs spend whatever they wish on salaries, build stadiums from private funds and have leagues that use a meritocratic promotion and relegation scheme.

Actually there is more to this than the letter writer realizes. Think about Marx’s predictions about capitalism. Marx said that capitalism would collapse because competition will give way to monopoly. Of course this prediction has not come to pass.

There are two reasons why competition has not led to monopoly in most markets. First, most markets have firm entry as well as firm exit in the long run. That is, people enter a market when they see existing firms earning lots of profit, and this prevents monopolies from forming. Secondly, there is technological progress, which opens up all sorts of new products and markets. Again, this prevents monopolies from forming.

However, in the context of a sports league, clearly neither of these can happen. There can only be so many clubs, and rules of the game change slowly, if at all. So Marx’s prediction of competition giving way to monopoly may well come true in an unregulated league. To prevent this from happening, you need outside intervention, you need redistribution, you need, for the lack of a better word, socialism!