The most common type of cartel is an agreement among competitors not to sell their product below a fixed price that will generate monopoly profits for the parties to the agreement. But another type of cartel, termed monopsonistic (from the Greek words for “one” and “purchasing of food”) rather than monopolistic (one seller, versus one buyer in a monopsonized market), is an agreement among competitors not to pay more than a fixed price for a key input, such as labor. By agreeing to pay less, the cartel purchases less of the input (and perhaps of lower quality), because less is supplied at the lower price (and suppliers may lower quality to compensate, by reducing their costs, for the lower price they receive).
The National Collegiate Athletic Association behaves monopsonistically in forbidding its member colleges and universities to pay its athletes. Although cartels, including monopsonistic ones, are generally deemed to be illegal per se under American antitrust law, the NCAA’s monopsonistic behavior has thus far not been successfully challenged. The justification that the NCAA offers—that collegiate athletes are students and would be corrupted by being salaried—coupled with the fact that the members of the NCAA, and the NCAA itself, are formally not-for-profit institutions, have had sufficient appeal to enable the association to continue to impose and enforce its rule against paying student athletes, and a number of subsidiary rules designed to prevent the cheating by cartel members that plagues most cartels.
As Becker points out, were it not for the monopsonistic rule against paying student athletes, these athletes would be paid; the monopsony transfers wealth from them to their “employers,” the colleges. A further consequence is that college teams are smaller and, more important, of lower quality than they would be if the student athletes were paid.
One might ask why colleges choose to collude on the student athlete dimension rather than on some other dimension, such as tuition—agreeing to minimum tuition levels, or maximum scholarships. The answer I think lies in my earlier point—the “justification” (specious though it may be) that paying student athletes would corrupt the educational process, an argument that draws on a tradition of admiration for amateurism even in adult athletic competition, as in tennis until 1968. Efforts to fix the price for a college education would encounter sharper antitrust challenges—and indeed the Ivy League schools were forced by antitrust litigation to drop their attempt to limit competition in scholarship aid, a form of price fixing—in effect colluding on tuition discounts, which is what a scholarship is.
College athletics would be less profitable for colleges if the student athlete market were competitive. If permitted, colleges would continue to agree to limit recruitment of athletes who could not satisfy degree requirements and to require athletes to attend classes and thus be bona fide students, because otherwise competition for the best athletes would tend to eliminate the “student athlete”; college teams would be largely composed of athletes who had no interest in or capacity to obtain a college education; awarding them a degree would be meaningless. The college would be engaged in a business unrelated to its academic mission and would thus have to pay taxes on its teams’ earnings. Worse, alumni donations to their alma mater, which are stimulated by the success of the college’s teams, would wilt if the teams were composed of non-students. If the University of Chicago bought the Chicago Bears, and renamed the team the University of Chicago Bears, would alumni of the University of Chicago write bigger checks to the University?
For similar reasons, I don’t think eliminating the rule against paying student athletes would result in their being paid actual salaries. The concept of a student who is also a professional athlete would trouble alumni. I expect that instead the student athletes would receive exceptionally generous scholarships—scholarships that would yield more than the full cost of tuition and living expenses. But the sky would not be the limit, since, facing higher labor costs, college teams would be less lucrative.
A possible legal complication in repealing the rule against athlete salaries would be the salary disparity between male and female college athletes. The only really lucrative college sports are football, a male sport, and men’s basketball. Competitive salaries for college football and basketball players would vastly exceed those for other sports, including women’s sports. Paying lower salaries to women athletes could invite challenges under Title IX of the Education Amendments of 1972, which among other things forbids sex discrimination in education that receives federal subsidies.
The strongest argument against eliminating the NCAA cartel is that it would make colleges and universities poorer, and this would be a social loss if one assumes (plausibly) that higher education creates external benefits. Of course the government could replace the lost revenues with subsidies financed by taxes. But while monopsony is inefficient, tax increases create distortions similar to those created by monopoly and monopsony.
I am not so concerned about "lower quality" in sports teams. To my mind all that matters is the relative quality of the teams playing; the entertainment value of sports would not increase if, for example, everyone's free throw average increased. By the way, has anyone actually done a rigorous study of the value of the distortions created by taxes? It would be of great use in cost/benefit studies of public works.
Posted by: Joshua Blumenkopf | 04/03/2011 at 07:53 PM
I have a strong impression that most of the rents generated by the NCAA cartel are not captured by the University but instead go to those involved in the athletic programs. Successful college coaches typically earn more than $1 million and often several million per year. The elaborate training facilities, specialized assistants, such as massage therapists, and so forth take more of the money. What’s left goes to the non revenue generating sports (swimming, track etc.), providing employment for friends of the athletic administrators. If I’m correct, ending the NCAA cartel would not directly impact the non athletic aspects of the university.
There is, however, one interesting unknown (unknown at least to me). Would a college team made up of partially paid players--essentially, a team that looks like semi-pro teams in other sports—engender the same loyalty and school spirit as an amateur team? This is more than just a question of contributions from alums (which, again, I think are mostly captured by the athletic department). Not every school, but some very good schools, center much of their social life around the teams. The teams don’t necessarily have to be good (although it does help if they are competitive) but the community does have to be emotionally involved in the team. Does a college team with millionaire coaches and minimum wage players engender more loyalty than the alternative?
Posted by: mike davis | 04/04/2011 at 08:14 AM
"Monopsony" My, that word is a mouthful. I had to look it up to figure out what the issue was and is. The issue of athletics on campus has always been problematic. Such as the distinction between the "Student-Scholar Athlete and the Professional Athlete in Training" and which model the College or University ought to follow and the issue between purely Academic scholarships versus Athletic scholarships. Is this the reason the UofC dropped out of the Big Ten back when?
Posted by: NEH | 04/04/2011 at 10:13 AM
Forget about direct university payments to athletes - merely let student athletes benefit from third party payments (i.e., not from the university or its boosters) for things such as bona fide endorsement deals, publicity rights, etc. Arguably, universities may be currently violating "right to publicity" statutes and the like. Such a revision to the NCAA rules would let the premier performers (across all college sports, male and female) benefit from the value they create, while also, perhaps, not implicating Title IX or jeopardizing non-profit status. Students who generate IP/valuable startups/etc. are, for the most part, able to exploit the value of their creations. Why should it be different for student athletes who create value in their personas?
Posted by: dean wermer | 04/04/2011 at 02:58 PM
dean wermer, Ever heard of Double Secret Probation or the value of cucumbers? ;) I guess you're not familiar with the truly possible corruptible influences of some Alumni and Associations... BTW, that "persona" is actually the creation and property of the University or College in question, the other, a form of intellectual property. Perhaps and then perhaps not the property of the student/s or the Institution, depending on where and how the idea originated (some stuff at various Institutions goes way beyond simple plagarism), not too mention, the involvement of certain contractual obligations.
Posted by: NEH | 04/04/2011 at 05:25 PM
Its quite odd to argue that the rich universities will be made poorer by breaking up the cartel, causing a reduction of resources available causing education to suffer. So the solution is to allow the rich universities to prosper on the backs of mostly poor, undereducated, minorities. I am as far from a bleeding heart liberal as it gets BUT come on that is a little much to bear.
Posted by: meyer | 04/04/2011 at 07:24 PM
I guess you're not familiar with the truly possible corruptible influences of some Alumni and Associations... BTW, that "persona" is actually the creation and property of the University or College in question, the other, a form of intellectual property.
Posted by: Pepe Fenjul Jr. | 04/05/2011 at 05:30 AM
The elaborate training facilities, specialized assistants, such as massage therapists, and so forth take more of the money. What’s left goes to the non revenue generating sports (swimming, track etc.), providing employment for friends of the athletic administrators.
Posted by: Pepe Fanjul | 04/05/2011 at 07:10 AM
"Higher education" is, pure and simple a big business. its customers are students and families willing to buy a increasingly useless product for very high prices. One of its product lines is athletics. No one should be surprised at the corporate shenanigans. After all, the NCAA is a trade organization. I did get a big kick out of Joseph Epstein's recent piece in a weekly which was titled "Lower Education; Northwestern University's recent after school sex show".
Isn't there something about power corrupting? nm
Posted by: Jim | 04/05/2011 at 08:56 AM
Posted by: Jim | 04/05/2011 at 09:01 AM
@NEH: Name and likeness are not creations of the universities/colleges where the student athletes perform in their sports (admittedly, some aspects, perhaps, such as jersey numbers might be a closer call). Prohibit boosters and alumni associations from entering into bogus licensing agreements (i.e., disguised payments), but allow bona fide endorsement and related agreements from third parties operating legitimate businesses: allow a female soccer player to endorse athletic equipment, fitness products, Reebok, Dove, health and nutrition products, etc.; allow a male athlete to endorse Louisville Slugger, Wilson rackets, Nike, etc. The NCAA and its member institutions should not be in the business of restricting endorsement and licensing income derived from the personas of its students. The NCAA and its member institutions currently do so, in large part (if not for the most part), to protect their own licensing income streams (jerseys, video games, merchandise, apparel/equipment deals, etc.), which in recent decades have become substantial revenue generators.
Posted by: dean wermer | 04/05/2011 at 09:21 AM
great article.. insightful and makes me think again. you really know how to win him back.
Posted by: david | 04/05/2011 at 02:48 PM
dean wermer, Fine... Go play for someone else, like Podunk U... Now what about that individual "Persona"?
Posted by: NEH | 04/05/2011 at 03:28 PM
If the Supreme Court found that this type of thing is a monopsony, what would stop it from outlawing salary caps for pro sports teams? I think one of the good things about league sports is that it is socialistic, so the teams can stay competitive.
Posted by: Faraz Jamshid | 04/05/2011 at 05:50 PM
Hard to suggest anything on this topic as the whole thing is a policy construct. As Posner wonders, if you give college men's B-B and F-ball a piece of the commercial action, how on women's BB? or rowing, ping pong? Cheerleaders?
Open the doors of our quiet, reflective institutes of learning to the "market forces" of the bazaar? There's already the problem of coaches being paid vast multiples of those mere Profs trying to teach the less glamorous micro-biology, physics, English lit........ and Econ.
But the profiteers have long had long had their toe in the door.... what next?
Posted by: Jack | 04/06/2011 at 01:03 AM
Article 29 minutes when LiWei frontcourt ball, the opposing players bring down by referee foul called. Article 31 minutes ZhengZheng backcourt foul,
Posted by: Nike Zoom Kobe VI | 04/06/2011 at 10:48 AM
they will get free kick ball onto the box, then be defensive player ejection.
Posted by: Nike Free Run | 04/06/2011 at 10:50 AM
OT but WOW! A 100 - 0 vote took place today in the Senate!!
With all agreeing that those over $1 million in prior year's income, along with some who collected after a $10 million prior year should not be eligible for unemployment bennies. Geez! the unanimity on a vote taking $100 million in bennies from the rich!
Mebbe we CAN afford to fund Big Bird in rural towns?
Posted by: Jack | 04/06/2011 at 08:37 PM
Why is it assumed that member colleges and universities of the National Collegiate Athletic Association are separate firms for the purposes of college athletics?
Would not it be more accurate to see the member colleges and universities as franchisees or divisions of the same firm where employees contribute capital?
Franchises have many rules constraining intra-brand competition.
Salary bands, financial and staff budgets, staff caps, and personnel policies and other rules are routine constraints on managers of the profit centres within a large company.
The problem with monopsony models is they assume long-run undissipated rents. What is the barrier to entry? Both buyers and sellers find it easier and more efficient to make adjustments the longer the period of time that elapses after a wage change, both the supply of and demand for labor.
A monopsony for the purchase of labor would have to encompass all of the entrepreneurs in the society. If it did not, then labor, a non-specific factor, could move into other firms and other industries.
Sports labour markets are one of many career labour markets.
There is great competition in occupational choices at the start of careers and career changes are not uncommon.
An example of strong competition for sporting talent is the West Indian cricket team which was the strongest in the world in the 1980s. The West Indian cricket team is now perennially a weak team because the sporting youth in the Caribbean islands now prefer to invest in trying out for North American basketball as their path to riches.
There are a great many professional sports around the globe offering rich rewards rather than just a few a few decades ago. Olympic sports are but one example.
Why did the Olympic monopsony collapse? Did the Olympic movement and its Olympic host cities ever make any money? Is a loss making monopsonist a contradiction?
Posted by: Jim Rose | 04/07/2011 at 02:16 AM
Jim. Ha! depends on who "WE" is! Anchorage made a strong bid for Winter Olympics. While "WE" the taxpayer would have built and owned new facilities there was a GOOD chance we'd be bagholders. Meanwhile the established hotels et al would have cashed in. As this was before we became so often in the news....... those in the tourism biz might have enjoyed a long tail on the immediate windfall.
It seems something of the model for lots of sports, doesn't it? Taxpayers get bamboozled into supplying stadiums....... and the free broadcast airwaves that really makes TV so profitable, while clubs, owners and players cash in.
Posted by: Jack | 04/07/2011 at 03:09 AM
Well, one way to look at it is what would the American people do without organized athletics. What would college kids do without the spectacle. Even the Romans had their NCAA and money was made. Better gladiators were well paid (or at least their sponsors were). WE often discuss the details of our cultural flaws but hardly ever the flaws themselves. It would seem that humans never learn, or least not enough of them to change direction.
Posted by: Jim | 04/07/2011 at 10:32 AM
Monospony: "One buyer many sellers". One would think that this would drive prices down. But in College athletics the reverse seems to be true. Has anyone priced tickets lately for any Big Ten Game? Or the paraphenalia marketed to Fans? Actually, NCAA football seems to function more as a Monopoly. All college teams seem to function on the enthusiasm of Alumnus and various Hangers on of the University. Of all the sports paraphenalia bought sold and worn enmasse today, ask anyone who's wearing such fashion whether they graduated, or attended the Instituiton in question. Probably 95 percent will answer in the negative. Ahh, Sports Fans!
Having attended a Big Ten School, as students we used to get free tickets to the Home games. Then on Saturday morning we would go down to the stadium and scalp them to Alumnus and the Hangers on. Which provided us pocket money for the week. Not anymore, ticket prices are way to steep and dear for the Institution to hand them out, gratis to students. When I was in school, most of us students were too busy trying to keep from being flunked out to take any notice of sports and so we didn't really care and most still don't. But the Alumnus did and still do...
Posted by: NEH | 04/07/2011 at 01:23 PM
There are a great many professional sports around the globe offering rich rewards rather than just a few a few decades ago. Olympic sports are but one example.
Posted by: Max Furniture | 04/08/2011 at 12:58 AM
The problem with monopsony models is they assume long-run undissipated rents. What is the barrier to entry? Both buyers and sellers find it easier and more efficient to make adjustments the longer the period of time that elapses after a wage change, both the supply of and demand for labor.
Posted by: Bathroom Living | 04/08/2011 at 03:56 AM
WE often discuss the details of our cultural flaws but hardly ever the flaws themselves. It would seem that humans never learn, or least not enough of them to change direction.
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Posted by: Office 2010 | 04/10/2011 at 10:11 PM