Key concepts:
Cost-Price Pricing:
· Cost-Price Pricing begins with an estimate of costs.
· The Measure of cost is multiplied by a mark-up factor to determine price.
· The More elastic the demand, the more sensitive consumers are to price change.
· The less sensitive consumers are to price changes, the higher the profit maximizing mark-up
Example:
A baseball glove manufacture should use different mark-up factors for different gloves.
For low-end gloves there are more substitutes, demand will be more elastic and the profit maximizing mark-up less than for high-end gloves for which there are fewer substitutes and a less elastic demand.
Questions: Due to the price difference from high end gloves to low end gloves will glove manufactures decide to cut the making of all low end gloves so consumers are forced to buy high end gloves?
Cartels:
· Differs from collusion because of the existence of a formal agreement to act together to fix prices
· Includes mechanism to detect and punish cheaters
· Prior to 1981, the NCAA sold the broadcast rights to college football games for all its members to the national television networks.
· The NCAA acted as a cartel by limiting output to increase their price.
· In 1984, the Supreme Court ruled in favor of universities, ending the NCAA cartel in network broadcast rights.
· Televised college football games increases
Examples:
· The NFL is an example of a remaining legal cartel in sport.
· They are allowed to sell packages of games to television networks of their choice.
· Also, they can restrict the sale of television broadcast rights by individual franchises.
· If specific franchises were to try to sell television broadcast rights beyond league restrictions, the league would punish them.
Question: Will the NFL continue to be able to run a cartel when it comes to broadcasting rights for games?
References
Chapter Five: Oligopoly and the Sport Industry. (2007). In M. J. Eschenfelder & M. Li (Authors), Economics of Sport (Second ed., pp. 77-84). Morgantown, WV: Fitness Information Technology.
Cost-Price Pricing:
· Cost-Price Pricing begins with an estimate of costs.
· The Measure of cost is multiplied by a mark-up factor to determine price.
· The More elastic the demand, the more sensitive consumers are to price change.
· The less sensitive consumers are to price changes, the higher the profit maximizing mark-up
Example:
A baseball glove manufacture should use different mark-up factors for different gloves.
For low-end gloves there are more substitutes, demand will be more elastic and the profit maximizing mark-up less than for high-end gloves for which there are fewer substitutes and a less elastic demand.
Questions: Due to the price difference from high end gloves to low end gloves will glove manufactures decide to cut the making of all low end gloves so consumers are forced to buy high end gloves?
Cartels:
· Differs from collusion because of the existence of a formal agreement to act together to fix prices
· Includes mechanism to detect and punish cheaters
· Prior to 1981, the NCAA sold the broadcast rights to college football games for all its members to the national television networks.
· The NCAA acted as a cartel by limiting output to increase their price.
· In 1984, the Supreme Court ruled in favor of universities, ending the NCAA cartel in network broadcast rights.
· Televised college football games increases
Examples:
· The NFL is an example of a remaining legal cartel in sport.
· They are allowed to sell packages of games to television networks of their choice.
· Also, they can restrict the sale of television broadcast rights by individual franchises.
· If specific franchises were to try to sell television broadcast rights beyond league restrictions, the league would punish them.
Question: Will the NFL continue to be able to run a cartel when it comes to broadcasting rights for games?
References
Chapter Five: Oligopoly and the Sport Industry. (2007). In M. J. Eschenfelder & M. Li (Authors), Economics of Sport (Second ed., pp. 77-84). Morgantown, WV: Fitness Information Technology.
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