Research Notes: An Economic Model of Player Trade in Professional Sports

Abstract

This article addresses the problem of competitive balance within a sports league. As opposed to standard literature on the subject, a direct game theoretic approach is made to predict trade between two marginally different teams. The main results may be summed up by proven existence of unique pure-strategy Nash equilibria that form player trade. These Nash equilibria are solely determined by the shape of the revenue function. A convex revenue function yields increased competitive imbalance, while a concave revenue function implies the opposite. The article closes by discussing some central assumptions, and the possible consequences of relaxing them.