Category Archives: markets

Are European Soccer Matches Won in Stadiums or in Boardrooms?

Wembley - Tor

Was it a goal or not? This question will forever cause a stir between English and German soccer fans. (Probably less of a stir for English fans since England were awarded the disputed goal in extra time of the 1966 World Cup final in Wembley Stadium: watch the disputed goal here, read about it here.) But this is not the only thing matter of debate between English and German soccer. Germans often complain that English football is just about money, finding a big sponsor, and less about sports and a fair competition.

Whenever we are talking about professional spectator sports there are always two overlapping competitions in play, so to speak. The one we are watching take place on the fields (court, ice, etc.) between the teams, and the one that goes on in the marketplace between rival businesses. The German complaint, in a nutshell, is that English football is driven too much by the pressures of the marketplace, and not enough by what the English fan’s themselves love to call “England’s game.”

In order to promote the sport over the marketplace, the German Bundesliga invented the “50+1 rule”. It says that clubs are allowed to compete in the Bundesliga only if they hold a majority of their own voting rights (50% + at least 1 additional vote; read more about the rule here.) By this rule the “on-field” sporting interests of a club should be protected from the “marketplace” economic interests of its investors. This way, financiers and businesses will be able to gain control over clubs and professional football teams. The Germans believe that this is exactly what has gone wrong with English football. For example, Manchester United is owned by the US-American business-family, Glazer. (You can read about the differences between English and German football policies in this BBC article from 2013.)

What does that mean for the sport? Is the competition in England and elsewhere unfairly manipulated by investors? Is it unfair that some clubs have wealthier or more generous investors than others? Does the German rule make it impossible for smaller teams to compete with the historic giants of the Bundesliga like Bayern Munich? Perhaps finding an investor is just part of the game if you really want to be able to compete on the field. Such are the dilemmas and paradoxes when two fundamentally different kinds of competitions – sports and markets – overlap so completely.

Advertisements

Bi-Partisan Markets

Milton Friedman purports in Capitalism and Freedom that the free market allows the individual to express her individual desires, while the democratic system forces conformity.

“From this standpoint, the role of the market, as already noted, is that it permits unanimity without conformity; that it is a system of effectively proportional representation. On the other hand, the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity. The typical issue must be decides “yes” or “no”; at most, provision can be made for a fairly limited number of alternatives. Even the use of proportional representation in its explicitly political form does not alter this conclusion. The number of separate groups that can in fact be represented is narrowly limited, enormously so by comparison with the proportional representation of the market.”

Although Friedman argues for the benefits of proportional representation in the market, the economic system can potentially arrive at a similar conclusion as the political system. Consider the situation of the carbonated soda market, where advertising similarly enforces substantial conformity by raising the barriers to entry. Coke and Pepsi hold over 70% of the market share.[1] This sounds dangerously similar to the current political landscape in the United States, with Republicans and Democrats holding over 60% of the “voter market share.” 36% of registered voters are Democrats and 27% are registered Republicans.[2] The competitive landscape is actually slanted more in favor of Coke and Pepsi than our often-criticized bi-partisan political system.

The point that Friedman is trying to make is that 49.9% of the country may be forced to conform to a political situation to which they are opposed. Obviously, if Coke has a majority market share, you are not forced to consume only Coke. However, Friedman argues that the free market constitutes a system of proportional representation, but that is not consistent in the Coke/Pepsi situation. Due to wide awareness of Coke as a result of advertising expenditure, the consumer has a higher subconscious disposition to purchase Coke. It is not the result of actual product preference, but rather brand preference. Even if a company launches a cola competitor to Coke that is a healthier alternative with the exact taste, it will likely fail due to consumer’s requisite knowledge of the Coke brand. Essentially, a consumer purchasing RC Cola has the same effect of a citizen voting for the green party. The consumer is forced to conform to an economic situation in which they potentially are opposed, but is unable to view or obtain alternatives due to Coke’s stranglehold on the market.

One could argue that the consumer is not truly forced to consume Coke; she could simply purchase RC Cola in the supermarket. However, what about the situations in stadiums, theaters, or restaurants where there is only one option? These venue providers will rationally select the most prominent brand in order to appease the most consumers, and thus select Coke. But this leaves the consumer with a ‘yes’ or ‘no’ choice in those certain environments; the exact situation in which Friedman condemns. Thus, while liberal economists criticize the conformity in politics and espouse the virtues of the competitive marketplace, both systems are equally susceptible to the concentration of power.


[1]Esterl, Mike. “Pepsi Thirsty for a Comeback.” Wall Street Journal, 18 Mar. 2011. Web. <http://online.wsj.com/article/SB10001424052748703818204576206653259805970.html&gt;

[2] “Fewer Voters Identify as Republicans.” Pew Research Center. 20 Mar. 2008. Web. 04 Apr. 2012. <http://pewresearch.org/pubs/773/fewer-voters-identify-as-republicans&gt;.

Can Adversarial Contexts Be Socially Integrating?

Recently, Michael Gillespie wrote an article on March Madness and the unifying character of sports in American culture.  What is it about sports, and March Madness in particular, that it is able to organize and direct a group of otherwise — to borrow a term from John Rawls — “mutually disinterested” individuals towards impassioned support of a common goal?  How can a mere game transform a diverse group of individuals into an almost singular consciousness, where personal identities dissolve into a shared communal existence?

Gillespie answers similar questions in terms of Nietzsche’s view of Greek tragedy, which is, at its core, a merging of both the individual and communal elements of life (or the Apollinian and Dionysian).  Nietzsche’s conclusion is ultimately that life is redeemed only as an aesthetic phenomenon, and a sense of meaning is derived from a sense of struggle in which the individual sacrifices his happiness for something greater.

College basketball, and indeed sports generally, might play this redemptive role in American culture, as it is through sports that we experience life in all its peaks and valleys — from the ecstasy of an unexpected win by a buzzer-beating three-pointer, to the despair over an impossible upset in a tournament’s first round.  Insofar as basketball is representative of the unifying character of adversarial institutions, how else might this dynamic play out towards a goal of social integration?  That is, how might conflict help transform a Gesellschaft (society) into a Gemeinschaft (community), to use Max Weber’s terminology.

A similar situation might be seen in the United States during World War II, where civilian support was widespread.  It is well documented that the U.S. contribution to the war effort increased U.S. GDP, through increased productivity and the better mobilization of the workforce.  This had a taxing effect on the U.S. population, but this struggle was tolerated because of, among other factors, some sense of unification expressed as patriotism.

Indeed, this point about economies and markets as an expression of social integration is interesting.  It has been argued* that Adam Smith’s Wealth of Nations, when interpreted in conjunction with his Theory of Moral SentimentsLectures on Jurisprudence, and Letters on Rhetoric and Belles Lettres, forms a comprehensive theory whereby markets are not exclusively constituted by interactions of “competitive and strategic individuals to secure their material preferences,” (553), but rather as a central mechanism for social order derived from the “inexorable struggle by human agents for moral approbation and social recognition” (ibid).  This reading, furthermore, goes on to state how Smith perceived markets as an analogue to the classical Greek polis, as the site where people seek mutual recognition.

Before we commit what Alfred North Whitehead termed the “fallacy of misplaced concreteness,” we would do well to recognize that this represents an idealization, which might be quite undersupported, especially in the context of contemporary market transactions.  While Smith’s Wealth of Nations argues for lack of government manipulation and intervention in markets, the events of recent years has made some people skeptical of the efficacy of this kind of unrestrained free-market capitalism.

Part of the problem is that there is rarely the sense of a common goal among actors within American corporations.  Some economists such as Paul Krugman claim that the U.S. economy has become dominated by the financial sector, and one criticism against financial institutions is that employee’s have no personal investment in the firm beyond their limited tenure.  Performance is usually assessed in terms of a very short time-horizon, and significantly long-term strategies to increase market capitalization might not be implemented if they sacrifice short-term performance.

Obviously, I have no resolution for these difficulties.  Perhaps adversarial contexts could be socially integrating, and the main issue is how might the unifying character of sports, for example, be applied to other adversarial contexts, like markets.  Smith’s model might have been descriptive for its time, but it’s a real question as to whether our contemporary economic climate is one that can ever be socially integrating in this way.  It might be that our attitudes towards the firm is unsupportive of individual responsibility towards the long-term financial health of corporations, insofar as this comes at the expense of short-term personal compensation.

* Kalyvas, A. and Katznelson, I.  “The Rhetoric of the Market: Adam Smith on Recognition, Speech, and Exchange,” The Review of Politics, Vol. 63, No. 3 (Summer, 2001), pp. 549-579.

Race-to-the-bottom watch: The sensational path to the gutter

In today’s 24-hour coverage by cable and internet news media, keeping abreast with current events has become more convenient than ever, but has the increased quantity of news come at the expense of quality?

The ubiquitous nature of news as a product of technological innovation has created a fierce competition among media outlets. Cable news networks such as FoxNews, CNN, and MSNBC compete daily to increase their market share of a limited number of viewers. In this market of perfect or almost perfect substitutes, the logical option to beating your competitors would be to try as much as possible to differentiate your product from the rest of the field, and this is exactly what cable news networks engage in.

A favorite strategy of networks in distinguishing their products is to rely on the over-the-top personalities of their journalists. As a consequence, we have seen a gradual shift of importance away from the news and towards the newscaster, as the voices of Glenn Beck, Bill O’Reilly, Mike Huckabee, Rachel Maddow, Keith Olbermann, Lou Dobbs, and many others work to define a particular station’s unique image. The assumption underlying this trend is that news on its own is not enough to attract viewers; therefore, networks compensate for the dull news with flamboyant hosts (and extreme guests) who do extended opinion shows on the events of the day.

The conundrum is that as one network becomes more entertaining, the others have to scramble to catch up if they want to avoid being left in the dust.  So far, the three major networks have all done their share to stay competitive, but what has been left in the dust is the news they were originally intended to report.

A recent study done by the WorldPublicOpinion.org found that, while there is a significant number of misinformed viewers of all cable news outlets, FoxNews viewers are the most likely to be misinformed about objective facts in current affairs. This may come as no surprise however, as the industry incentives to sensationalize have, for example, frequently led FoxNews’ primetime pundit Glenn Beck to turn world news into entertaining puppet shows for his audiences to enjoy. And puppet shows are not even the end of the story. Some viewers have even turned exclusively to Comedy Central’s Colbert Report or The Daily Show for their portion of the day’s news.

For cable news, the race to entertain viewers has led to a race to the bottom in factual reporting. In order for a network to be competitive, it has to have its own brand of radical anchors that cater to a specific and ever-more partisan audience. The result has been the creation of a perpetually polarized atmosphere and an uneducated viewership. Only time will tell if the demand for entertainment news programs will continue or if viewers will become disillusioned and seek alternative or additional sources for news, hundreds of which are already available online.

A friendly chat about adversaries

This blog got plenty of free publicity last Friday when I (Wayne Norman) did a turn on Duke University’s weekly “Office Hours” live tweet-in show. For better or for worse, the conversation should be permanently accessible here:

Some of the topics of conversation were plucked from my other blog, This Sporting Life, including one on Why the NCAA Tournament is the American Idol of Sports, and What’s Wrong with the Wonderlic Test.

Bethany’s post here about what we learn about political ethics from primary elections also got a quote and a shout-out during the interview, and it can be found here. Stay tuned for some of her follow-up thoughts on that topic.

Race-to-the-Bottom Watch: Are We Drowning in Advertising

Advertisements are everywhere.  Cabs and busses are covered in full-size ads, billboards are placed every 50 yards along highways, YouTube now plays ads before you can watch the video you intended, TV events are created out of one-sentence announcements (e.g. Heisman Trophy presentation, American Idol final), pop-ups pervade web browsing while we simultaneously find ads for pop-up blocker applications, high school prom dances turn into ads for the usefulness of duct tape, and people are ever getting paid to get advertisements tattooed on their bodies.  A 2009 study suggests that the average American adult spends over an hour a day watching advertisements on TV alone.

But really, you’ve got to feel sorry for the advertisers, don’t you? Think about it: the more ads that are put into the public domain, the less effective each individual ad becomes.

This stems from the fact that advertisers are competing to satisfy the existing and limited demand of a consumer base, rather than creating new demand.  Think of the sheer volume of ads for food and drinks.  These companies are not assuming that without advertisements people will just not eat at all; rather, they assume that people are going to eat somewhere, and advertisements are intended to direct the consumers’ demand in their direction.

While there is a certain amount of demand created by advertisements, advertisers aren’t so naïve as to assume that they can convince you, with a single 30-second spot, to buy a brand new car out of the blue.  Rather, their primary interest is to direct, and at times exaggerate, a consumer’s existing desires.  This means that marketers are essentially competing to win the same consumer demand, and consequently, with each entrance of a new competitor, the old ones have to fight even harder to maintain its market share.

Imagine visiting a city for the first time and getting lost on your way to the hotel.  Contrast the following scenarios:

Scenario 1 –You pull over and ask someone for directions.  The person says they know where you are intending to go and gives you concise enough directions to follow.

Scenario 2 – You pull over and ask a group of people for directions.  They all say that they know where you are intending to go and each gives you concise enough directions that you believe you can execute—however; everyone in the group gives you a different set of directions that lead you to altogether distinct places!

Presumably in scenario 1, you would simply follow the directions you were given, but scenario 2 seems much more confusing.  Whose directions are you to follow?  The person who has lived in the city the longest?  The one who seemed most confident?  The one who claimed to be a taxi driver?  The one who claimed to be a doctor?  The one who was most well dressed?  In fact, the situation seems altogether so confusing that you will probably reject all of their opinions and ask a new person or try purchasing a map.

The same confusion arises when advertisers compete for your demands.  The more businesses that decide to advertise, the more the existing advertisers have to shout louder, in more places, and in smarter ways in order to get your attention.  This ultimately leads to more and more of our dollars and minutes being spent on advertisements every year. We are, in short, in a commercial race to the bottom wherein the more effort that is expended leads to not only fewer gains but higher costs for both businesses and consumers. 

Race-to-the-Bottom Watch: Fishing for Trouble

What’s the most deadly occupation in America? According to the U.S. Bureau of Labor Statistics, it’s fishing. Commercial fishing, to be precise. Why is fishing so dangerous? Fisherman can be trapped in a perfect storm of collective-action problems and, well, actual storms.

The harsh competition in this already dangerous industry is leading workers to labor in ever-worse sea conditions in order for businesses to stay afloat (so to speak). The best fishing grounds are often found in the most treacherous seas, and the clock ticks down quickly in some fisheries (say, the crab fishery off the coast of Alaska) where the seasons last only a few weeks. When one vessel decides to go out in stormy weather in order to get a competitive edge, crews of other vessels are faced with the dilemma of either falling behind the competition or following suit in braving the potentially life-threatening conditions.

This dilemma is only exacerbated by the depleted state of many of the world’s most important fisheries.  In an effort to stem the “tragedy of the commons” of overfishing, authorities have commonly resorted to setting an overall limit of fish that can be caught in a given fishery for a given season.  The approach of giving an aggregated limit breeds intense competition because each fish caught by one fisherman entails one fewer available to all the others.  This creates what has become known as a “race to fish” wherein fishermen are willing to do almost anything in order to nab a greater share of the overall quota before it runs out, including foregoing safety precautions.

So this race to fish is really a race to the bottom. One crew deciding to risk the elements in order to gain a competitive advantage starts the race. But once the other vessels join the competition by going out in perilous weather conditions, the competitive edge that motivated the first mover vanishes, while the risk of death for all of the fishers increases.  Thus, in the race to fish we can see how individuals attempting to act in their own interest, while responding to the actions of others attempting to do the same, can all end up worse off.

Is there any way out of this race to the bottom? Some authorities have replaced the overall quota with individual allocations to prevent such fierce competition.  Critics protest, however, that this solution does not live up to the free-market principles of American capitalism.  However, it is evident that the case of a totally free market for fishing (in which fishers and their customers do not pay the cost of replenishing the fish stock) is likely to lead to overfishing and ultimately the end of any kind of market for fishing. What if the rights of individual allocations were auctioned off in advance?