SportsEconomics and Theories
SportsEconomics and Theories
OnJune 11 2015, an article by GeorgeZackon the replacement of Adidas by Nike as NBA’s official on-courtapparel supplier was published. I will base my assignment andanalysis in this article.
Thereare several theories, which we can relate to when, analyzing thearticle, but I am going to concentrate on two theories namelyMonopolyand Monopsony.
Amonopoly exists in a situation whereby a single company ororganization controls all or nearly all the market of a given good orservice. It can be characterized by the lack of competition in themarket, which often results in high prices or the existence ofinferior goods and services, which the public does not seem to like(Andreff& Szymanski, 2009). Nike controls up to 90% of the shoe marketand industry in the American sports industry thus making it amonopoly. Another characteristic is profit maximizing. By the end ofFebruary 2015, Nike had recorded a gross profit of $13.86 billion,making it one of the highest profits they have recorded. By signingthe deal Nike will become the first ever company to have its logoimprinted on NBA’s uniforms and on all court designs. Nike also hasplans to print advertisements on jerseys something that has neverhappened before in the history of NBA (Zack,2015). This clearly shows that Nike is enjoying monopoly in theindustry.
Withmonopoly comes monopolistic competition and this is said to be animperfect competition, and this exists when there are many sellers ofa good and service, but the products do not have a big difference, Inregards to the article let us use shoes as a perfect example.
Shoecompanies like Adidas, Nike and Reebok sell shoes at almost the sameprice. The factors that make one shoe company different from theother are so small that it is not worth considering. Companies oftenengage in non-profitable activities to promote their products such asendorsing league players. In the year 2013, superstar Kobe Bryant wasendorsed by Nike and signed a five-year contract worth up to $40million. By endorsing other superstars, Nike has ensured that itenjoys a monopoly in the industry, as people tend to buy what theirfavorite superstars are wearing.
Accordingto the article, Nike will also have the authority on designing andmanufacturing jerseys and other apparel categories. This is also aclear indication that Nike is enjoying monopoly in the Americansports gear industry.
Monopolyhas a good advantage in that the company enjoys high profits anddominates the price of its goods (Andreff & Szymanski, 2009).This is evident in the case of Nike they are recording big profitsannually outshining their fellow competitors. According to thearticle, Nike has enjoyed great profits over the last financial yearrecording one of its biggest since the company was formed. Anotheradvantage is that the firm has limited or no competition ensuringmaximum profits.
Monopolyalso has a disadvantage in that consumers have limited or no otheroption when it comes to purchasing goods and services. Although notstated in the article, not all consumers tend to enjoy Nike products.Others may tend to enjoy other products, but Nikes superiority overthe market forces them to buy Nike products.
Thereare several reasons why monopoly exists one is economic barrierswhich may vary from technological superiority to lack of adequatefunds for the business or company. Another factor is legal barrierscopyrights and patents give a monopolist total control over a certainmarket. Monopolists tend to copyright their work so that no otherfirm can try doing the same business. There is also the factor ofdeliberate actions a monopoly may lobby governmental authorities inensuring that no other company interferes with their marketdominance.
Monopolyshould not be encouraged so that people can enjoy a wide variety ofgoods and services. A company that enjoys monopoly can intentionallyproduce low quality products, as they know that the consumers havelimited options. By discouraging monopoly
Thisis where a large buyer tends to control the market. The buyer couldbe buying goods and services from different companies (Andreff &Szymanski, 2009). In relation to the article, NBA, as the buyer canchoose not only to buy goods from Nike but also from other companies.In the case of Nike, having its logo on the uniforms the NBA canchoose to decline the offer and choose to go to another company andbuy their goods.
Monopsonyhas a big advantage in that the buyer controls the prices of variousgoods and services. It also has an advantage in that companies willstrive to produce high quality products so as to win the favor of thebuyer.
Monopsonyhas a disadvantage in that a buyer controls the market he/she candrive the producers into making losses in that they can drop pricesas they want or as they feel comfortable for them.
Andreff,W., & Szymanski, S. (2009). Handbookon the economics of sport.Cheltenham, UK: Edward Elgar.
Zack,G. (2015). NikeInc Inks Deal With NBA As Exclusive OnCourt Apparel Provider. Bidnessetc.com.Retrieved 17 June 2015, from