SIMES July 2011 Issue An Economic Perspective on sports, babies, and a nation in devastation All this and more in our July issue!
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Contents Letter from the Editor
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Reflections on the SIMES Experience
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By Chee Wee Chong
The Nuclear Crisis in Japan
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By Oi Xin Wong
‘More Babies Please’ - Effects of declining population growth on the Singapore economy
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By Jeslyn Lye
The Economics of Sports By Ruenn Sheng Ng
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Letter from the Editor Our latest July issue takes us through the simpler things in life, with a SIMES touch! Our writers explore the economic implications of population growth, and the sports industry to highlight exactly how relevant economics is to our daily lives. We also let you keep track of the effects of current natural disasters, namely the earthquake in Japan and how offset of a nuclear crisis affected the Japanese economy. This issue also gives you a closer look at the people behind SIMES, with a contribution from our former EXCO member to tell you about his experiences with the organization. Be sure to take a look at our sneak peek on what to expect for SIMES Economics Week 2011 coming up this October 21st 2011. There’s a lot to expect from this year’s extravagant display on the global economy.
Happy Reading!
Kind Regards,
Sruti Pegatraju
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Reflections on the SIMES experience…. By Chong Chee Wee
Chee Wee is former Secretary and Finance Head for SIM Economics Society, and is a valuable and beloved member of the SIMES family. Recently securing an SIM scholarship, he shares his experiences with SIMES and how the organisation helped him carve out his current success.
To quote Anthony J. D'Angelo, “Develop a passion for learning. If you do, you will never cease to grow,” I believe Singapore Institute of Management has provided ample opportunities and platforms for students to cultivate their passion for learning. In SIM Economics Society (SIMES), I had found not only a platform pursue my interest in Economics, but also a medium to promote the subject among the student population. The club has provided me ample opportunities for personal development which will aid me in my career. Because of three CCAs I have in school, I have learned to manage my time to cater to my academia demands. Furthermore, as the Secretary and the Finance Director of SIMES, I had the opportunities to interact with distinguished Chief Executives Officers and established managers during the seminars organized by the club. In addition, I have become versed in fostering business relationships with external suppliers. Through these experiences, I was able to enhance my interpersonal and communication skills. In addition, the diversity of students in SIMES has provided me the chance to work with friends from different cultures, and create greater awareness in cultural differences. Apart from the individual grooming opportunities, SIMES has too given me pleasant memories and established friendships during my two years in the club. 4
Securing a scholarship to finance my study was a goal of mine since my enrolment into University at Buffalo. Despite my unsuccessful attempts in achieving the scholarship in two attempts, I have remained focus on that goal. One of the most important lessons I have learned from SIMES is to overcome obstacles in achieving success. I was able to draw on my experience and finally receive the SIM GE Scholarship this year. I will like to take this opportunity to thank Dr. Seet Min Kok for his tutelage. Your guidance has allowed me to mature as an individual. I wish SIMES the best and hope the club will enjoy continual success in spreading the passion for Economics among the student population.
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The Nuclear Crisis in Japan By Oi Xin Wong On March 11, the 9-magnitude earthquake and tsunami occurred in Japan. This resulted in a raging fire in the nuclear plant which discharged radioactive particles and contaminated the surrounding countryside and even made its way to Europe. Radiation had shown up in local milk and vegetables, and briefly appeared in Tokyo's drinking water. Japan's Prime Minister Naoto Kan who has been in office for less than a year, has taken some bold steps since the disaster, including shutting down a second quake-prone nuclear plant southwest of Tokyo, the Hamaoka plant, and announcing a radical energy policy review that stresses clean renewable. But Kan's critics have faulted his handling of disaster relief and the slow pace of building temporary new homes for tens of thousands made homeless by the monster tsunami that hit the northern Pacific coast. Japan's nuclear industry supplied a third of the country's electricity. In total, 11 of Japan's 50 nuclear reactors shut down following the earthquake. The capacity to produce electricity has been reduced by as much as 40% for now, and could remain at less than 80% of pre-quake levels for a long time. Japanâ€&#x;s economy was adversely affected by the 9-magnitude earthquake and tsunami which killed about 25,000 people and knocked out the Fukushima plant on March 11, triggering the world's worst nuclear accident since Chernobyl. The World Bank estimates that Japan's disaster will cost between $100-$235 billion, and take five years to rebuild. The quake hit Japan's north-east section, responsible for 68% of the the world's third largest economy. Although the Bank of Japan is providing the market liquidity to ensure the stability of financial markets, the long-term impact will be
negative to the country's already struggling economy. Rebuilding will lift the economy a bit but it will be outweighed by the probable increase to the national debt -- already twice as big as Japan's annual economic output. The quake and tsunami damaged or closed down key ports, and some airports shut briefly. This has disrupted the global supply chain of semiconductor equipment and materials. Japan manufactures 20% of the world's semiconductor products, including NAND flash, an indispensable electronic part of Apple's iPad. Japan also supplies the wings, landing gears and other major parts of Boeing's 787 Dreamliner.
Key elements of Japan's manufacturing have frozen. Toyota, Honda and Nissan automobile plants in northern Japan have been closed. Nissan has said that nearly 2,300 Nissan and Infiniti vehicles awaiting shipment were destroyed by the tsunami that followed the 9.0-magnitude earthquake, according to a report from IHS Automotive. Nissan may move one production line to the U.S. A total of 22 plants, including Sony, were shut in the area. With shipping ports and roads destroyed, some companies are simply unable to export products. Japan is the largest net food 6
importer in the world. Japan currently imports 60 percent of its caloric intake from other countries. The earthquake has brought about a temporary halt in short-term demand for food, keeping food prices in check. New Zealand will be affected as Japan is their 4th largest trading partner. New Zealand exports many products including aluminum and fish to Japan. They are waiting to calculate damage to ports, and how the Japan economy will affect trade, therefore business travel between the countries. Devastation has also seized the technology sector. About 40 percent of the world's flash memory chips, used in devices ranging from cameras to computers, are made in Japan. A fifth of the world's semiconductors are made there. Already, Sony has shut down 10 factories and two research centers, according to Bloomberg News. Toshiba has shut down five of its plants. Texas instruments has closed two plants and won't return to full production until July, according to Reuters. The affected companies produce key components for computers, televisions, camcorders, DVD players and iPads. Now, the high-tech industry, which experts have seen as a key source of economic growth, contends with the prospect of a shortage. Japan's economy had just started to recover from a 20-year deflationary period and recession. It rebounded strongly in 2010, when GDP increased by a robust 3% -- the fastest growth in 20 years. It fell off briefly during the last quarter of 2010, but was expected to pick up again with stronger exports to fastgrowing neighbors in Asia. The earthquake adds to Japan's economic challenges of government debt, rising commodity prices and a shrinking labor pool. Gross domestic product fell 0.9 percent in January-March, nearly double the 0.5 percent forecast by analysts, translating into an
annualized 3.7 percent decline compared with a 2.0 percent forecast. The 0.9 percent contraction in the first quarter of this year was the largest since a record 4.9 percent plunge in the first quarter of 2009 as the financial crisis raged. It will be a challenge for the economy to return to where it was before the natural disaster, with many economists predicting only a sluggish and gradual recovery later this year. Future uncertainty An already anemic Japan, is combating one of the worst economic challenges in the nationâ€&#x;s history. Does it have the resistance to regain itâ€&#x;s stability and become the technological and energy power hub it has always been? Or are we going to have to helplessly watch the decline of an economic superpower?
References http://www.dailymail.co.uk/news/article1371793/Japan-nuclear-crisis-Fukushimaplant-entombed-concrete-radiation-leak.html http://www.huffingtonpost.com/2011/06/17/ japan-nuclear-crisis-tepco-suspends-cleanup_n_879654.html http://www.washingtonpost.com/world/francewants-nato-to-fight-harder-against-gaddafisforces/2011/04/12/AFxrFEND_story.html
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More Babies Please! By Jeslyn Lye Perhaps you have heard enough of the media
an economy. It is important for a country to achieve eco-
telling us that the Singapore fertility rate has dropped. Well indeed, the Resident
(1)
Total Fertility Rate (TFR)
nomic growth, as it would mean that the average person (2)
is able to consume more goods and services, hence a
has fallen to a record low of 1.16 babies per female in
higher standard of living. Sustained economic growth is
year 2010, lesser than the 2.1 required to replace the
often one of the main macroeconomic objectives of a
population naturally (ref Table 1: Total Fertility Rate (per
government.
Female). Various policies and incentives like „Baby Bo-
Changes in the population age structure may
nus Scheme‟ and longer maternity leaves have been
have a considerable influence on the economic growth.
introduced by the government in the past few decades,
According to the Life Cycle Hypothesis (LCH), an eco-
but birth rate is declining continuously even in the good
nomic concept on individual‟s consumption developed by
years. But why is such a personal issue as family plan-
Franco Modigliani, consumption depends on a person‟s
ning such a concern for the government? What has the
life-time income. This model states that individuals prefer
nation‟s fertility rate got to with the economy?
to smoothen out their consumption over their lifetime, preferring to save while they work in order to finance their needs when they retire. Aggregate savings rates
Population and Economic Growth Economic growth is defined as the rate of change
tend to be lower among the young and the elderly than
of an economy‟s level of real output over time. In most
the working adults. As a result, key drivers of economic growth such as aggregate labour supply, productivity,
Table 1: Total Fertility Rate (Per female), Singapore
consumption, and savings vary from country to country, depending on where the majority fall in the life cycle.
Total Fertility Rate (Per female)
Ceteris paribus, a nation with a higher proportion of the 1970
1980
1990
2000
2009
2010
3.07
1.82
1.83
1.60
1.22
1.16
young and elderly is more likely to experience slower economic growth than one with a higher proportion of the working adults. With a declining birth rate and mortality
Source: Singapore Department of Statistics
rate, Singapore faces an ageing population (ref Chart 1: Age pyramid of resident population). This is a cause for concern as the total Labour Force Participation Rate (LFPR) (3) may decline with an aging society, resulting in
economies today, Gross Domestic Product (GDP), is
lesser economic output, hence slower economic growth.
commonly used as the measure of economic output. But
Singapore’s Population Policies
why is economic growth important to us? Well, many
However, if we dig further into the history of mod-
regard GDP per capita, the percentage rate of change in
ern Singapore, we can find that declining fertility rate
real GDP per head of the population from time to time,
hasn‟t necessarily been a concern for Singapore. In fact,
as a quantitative indicator of one‟s standard of living in 8
in the 1960s, the government embarked on a population
higher proportion of people stayed single. As a result, the
control programme as they fear that Singapore‟s growing family planning programmes took a U-turn in the 1980s – population will spiral out of control and overburden the
“Have three or more, if you can afford it” policy was an-
developing country by overwhelming the job market,
nounced in the 1987. The main aim of the policy was to
housing, health care facilities and the existing infrastruc-
bring back Singapore‟s fertility rate back to its natural
ture. In addition, a high rate of population growth restricts replacement level by encouraging married couples to the growth of the development of savings – it tends to
have more than two children if they can afford it. Cam-
depress the savings per capita, retarding the growth of
paigns started to emphasize on the joy that children
physical capital per worker. The National Family Plan-
bring, rather than viewing them as economic burdens. In year 2000, more policies were introduced to defray the economic cost of having children --- „Baby Bonus Scheme‟ and „Third Child Paid Maternity Leave Scheme‟. However, despite all these incentives, Singapore‟s birth rate outlook currently remains pessimistic. Immigration: Another way to grow the Singapore population? According to a Straits Time article “Immigrants needed as fertility rate dips further: MM Lee” dated early this year, former MM Lee Kuan Yew remarked: “We need young immigrants. Otherwise, our economy will slow down, like the Japanese economy. We will have a less dynamic and less thriving Singapore. This is not the future for our children and grandchildren.” The government‟s stance on tapping on immigration to augment our population, to support economic growth and to mitigate
ning Programme was launched in 1966 to reduce the
the impact of ageing is not a new thing. According to an
total fertility rate -- slogans such as “Girl or Boy -- Two is
article by Asia Times Online, during a parliamentary de-
Enough”, “Small family – Brighter future” were dissemi-
bate in year 2000 on fertility rates, then Community De-
nated to the public. The “Stop at two” policy was intro-
velopment Minister Abdullah Tarmugi cautioned that if
duced in 1969, using higher tax and other disincentives
Singaporeans have fewer babies, the country will have to
to curb family growth. As a result of such measures, the
rely even more on immigrants. Former MP Dr Wang Kai
total fertility rate dropped steadily from 4.66 per woman
Yuen was quoted to be saying that “A nation that cannot
in 1965 to the planned level of 2.1 in 1975, and declining
revert its declining birth rate is effectively committing
below that level thereafter (ref Table 2: Vital Rates, 1950
collective suicide.” He felt that the root of the problem
-2010, Singapore).
lies in the perceptions of young women toward family life.
The population control campaign was successful
To grow the Singapore population, the govern-
– birth rates continued to decline as the small family size
ment ramped up its foreign talent programme in 2006 to
grew in appeal. In fact, as mentioned earlier, the decline encourage talented people to migrate to Singapore. PM in the birth rate did not level off at the natural replace-
Lee Hsien Loong stated in the National Day Rally
ment level – people are getting more educated and
Speech in 2006 that for the economy to grow, for Singa9
Table 2: Vital Rates, 1950-2010, Singapore
Vital Rates, 1950 – 2010 Year
Rate of Natural Increase
Crude Birth Rate
Crude Death Rate
Infant Mortality Rate
33.4 36.2 31.3 24.1 17.0 12.6
45.4 44.3 37.5 29.5 22.1 17.7
12.0 8.1 6.2 5.4 5.2 5.1
Per 1,000 Live-births 82.2 49.5 34.9 26.3 20.5 13.9
12.7 11.7 13.5 9.2 5.8 5.9 5.9 5.8 5.6 4.9
17.6 16.6 18.2 13.7 10.2 10.3 10.3 10.2 9.9 9.3
4.9 4.9 4.7 4.5 4.4 4.4 4.5 4.4 4.3 4.4
8 7.6 6.6 2.5 2.1 2.6 2.1 2.1 2.2 2
Per 1,000 Population 1950 1955 1960 1965 1970 1975 1980 1985 1990 2000 2005 2006 2007 2008 2009 2010
Total Fertility Rate
Gross Reproduction Rate
Net Reproduct-ion Rate
Per Female na na 5.76 4.66 3.07 2.1
na na 2.78 2.27 1.49 1.0
1.82 1.61 1.83 1.6 1.26 1.28 1.29 1.28 1.22 1.15
0.88 0.78 0.88 0.77 0.61 0.62 0.62 0.62 0.59 0.56
na na 2.54 2.08 1.42 0.97 0.9 0.76 0.88 0.76 0.61 0.61 0.62 0.62 0.59 0.55
Source: Yearbook of Statictics Singapore, 2011
pore to be strong internationally, we will need a growing
like Japan, South Korea and Taiwan also face the same
population, not just numbers but also talents in every
issues. With Singapore‟s total population
field in Singapore. He also clarified that the government
million mark last year and a quarter of the total popula-
will be looking for all types of talents and 'not just gradu-
tion attributed to the non-residents like students and ex-
ates, bankers or lawyers'.
patriates (ref Table 2: Key Demographic Indicators, 1970
(4)
hitting the 5
However, according to Dr Angelique Chan, a soci- -2010), it is no wonder that some question their loyalty to ologist, immigration is only a short term solution for
the nation. After all, there was a mass exodus of expatri-
population growth. She felt that in the long run, the gov-
ates in Dubai, a metropolis that is reliant on foreigners,
ernment should look at policies that are more family-
when Dubai‟s property bubble burst in 2009.
friendly, helping them to better balance work with family
In view of everything said, the population issue
life.
will continue to be a great concern in the long-run as
Conclusion
labour supply and savings are factors affecting economic
No doubt healthy population growth is essential
growth. Fertility fell when income grew during the past
for sustained economic growth, but if we were to rely
150 years in the developed world, contrary to the Mal-
heavily on foreign immigration as a way to grow the
thus view (1789) the fertility will rise when income rise
population, we cannot afford to ignore the challenges
and vice versa. As mentioned earlier, other developed
that it brings along – the social integration of the new
economies also face declining fertility rate among their
immigrants into mainstream Singaporean society, plausi- residents. What we need here is a paradigm shift of our ble weakening of national identity, and increased compe- mentality: with better healthcare, elderly are healthier tition. In addition, aging population is not a phenomenon
than in the past – they can also contribute to the work
exclusive to Singapore – developed Asian economies
force. The society needs to adjust the society‟s percep10
tion on the elderly – elderly should not be viewed as an economic burden to the growth of a nation. Business can encourage their older workers to continue working by allowing flexible schedules, thus benefiting from their workers‟ experience and responsibility. We must also continue to invest in education – if smaller working population have higher levels of human capital, standards of living need not necessary fall despite the shift in the population age structure. Table 2: Key Demographic Indicators
Key Demographic Indicators, 1970 – 2010 Population
Total Population(4) ('000) Resident Population(1) ('000) Singapore Citizens ('000) Singapore Permanent Residents ('000)
1970
1980
1990
2000
2010
2,413.9
3,047.1
4,027.9
5,076.7
2,282.1
2,735.9
3,273.4
3,771.7
2,194.3
2,623.7
2,985.9
3,230.7
87.8
112.1
287.5
541.0
97.06%
94.54%
89.79%
81.27%
74.29%
2.94%
5.46%
10.21%
18.73%
25.71%
2,074. 5 2,013. 6 1,874. 8 138.8
Source: Singapore Department of Statistics
Ratio of Resident Population to Total Population Ratio of Non-resident Population to Total Population
Notes:
References
(1)
Lee, B., 2008. Ageing population may hurt Singapore most. The Straits Times, [online] 28 Jun. Available
Singapore residents refer to citizens and those who have been granted permanent residence in Singapore. (2)
Total fertility rate (TFR): Refers to the average number of children that would be born per female, if all females lived to the at: < http://www.asiaone.com/Business/News/My+Money/ end of their childbearing years and bore children according to a Story/A1Story20080627-73309.html> given set of age-specific fertility rates. It is derived by aggregating the age specific fertility rates of females in each of the repro- [Accessed 27 May 2011] ductive ages for a specific year. (3)
Leong, W.K.and Teo, W.G., 2011. Immigrants needed as
(4)
January/
Labour Force Participation Rate (LFPR): Refers to the proportion of the population ages 15–64 that is economically active: all fertility rate dips further:MM.The Straits Times, [online] 19 people who supply labour for the production of goods and serJan. Available at: <http://www.pmo.gov.sg/content/ vices during a specified period. pmosite/mediacentre/inthenews/ministermentor/2011/ Total population comprises Singapore residents and nonresidents.
Imirants_needed_as_fertility_rate_dips_further_MM.html> [Accessed 1 Jun 2011] Lewis, P., 2009. Expat exodus as Dubai's bubble bursts. The Brunei Times, [online] 17 Feb. Available at:
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The Economics of Sports By Ruenn Sheng Ng How Sports and Economics are linked?
In assessing the multi-dimensionality of sports as a good, I would classify it as a heterogenous product. There are a range of differentiated types of sports, and consumers can participate in the good in a number of ways – in fact each consumer may interact with sports through its goods and its services. There are also different levels of competition in a sport.
It is hard to believe that sports and economics can be linked. The former involves sweat, stamina and body strength. The latter involves theoretical models and predictions. In my opinion, though, they are related, in the way both look at the choices, decisions and trade-offs. Sports as an industry, thrives on the nature of competition – rivalry amongst teams or individual players, is what attracts its most loyal consumers. However, the process of implementing these competitive sports is a lot more concentrated than what meets the eye. In this article, I will try to bring out the economist with me to dive into different aspects of the sports industry and look at them from an economic standpoint.
About The Sports Market
As for the number of firms in sports, sports tend to have just one central provider, in most cases of organized sports. They are often central governing bodies, each instituted in one sovereign country. For example, the International Olympic Committee (IOC) governs the organization of different Olympic Games (involving mostly popular sporting competitions) around the world. It is the only official organization that organizes and regulates international competitions between soccer teams. Every country will only have one National Olympic Committee, with no rival groups. As IOC itself has no competition for Olympic competitions and rules all over the world, it is the de jure monopoly.
The sports market, loosely defined, is the specific sale of goods and services associated with sports. This may include sporting events, expenditure on teams and leagues, as well as the sale of sport merchandise.
As a result, in the most popular sports in the world, the barriers of entry are high associated with high start-up costs. The world‟s most popular sports club, Manchester United Football Club, is worth US$1.87 billion, as calculated by Forbes. The Mumbai Indians cricket team is The global sports industry is now worth a whopping US$120 billion, and is expected to grow to US$140 billion bought by Reliance India Limited is sold at US$112.9 by 2012. In China alone, the sports market is expected to million. Hence, all those teams we cheer for require large investments to be set up or bought over by their owners. exceed 2 trillion RMB (US$300 billion) by 2020.
Examining the Sports Market‟s Market Structure To examine the market structures of sports, we have to examine four factors: the number of agents in the market , the nature of sports as a product, the barriers of entry to the sports industry, and the target customer base with regards to sports and its products.
These costs are a result of a variety of factors, including high costs for training the players, wages of the players, as well as the demand for sponsorship rights. Every established company pays millions of dollars to sports clubs for the right to have their respective logos pasted on top teams. The Formula One racing team Scuderia Ferrari, for example, only grants deals with companies such as Ethiad Airways, Puma and of course, Ferrari (a subsidiary of Fiat). The supporters of such sports clubs often see advertisements of only one brand, in any given category of things (like clothes, gear, car, etc) in a sports event. For example, ardent Ferrari fans would wear only Puma and Ferrari gear, while watching games in television or in racetracks. So, in the context of supporters of sports clubs that purchase or use sports products, they are most highly monopolistic. As for informational sets, the information of different sports is the same everywhere. They are operated around the world in the same manner. The only competition in sports, most likely, is the competition between sports and other forms of recreation.
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Sports and Wages
whole world, and their consumers, who devote considerable attention on such events. The most successful case can be argued for the 2008 Beijing Olympics, audience for the latest editions of this event had hit 4.7 billion, according to AC Nielson. But the Olympic Games did not had a lasting impact on the Chinese economy, because of both the late 2000‟s economic crunch and the high costs of staging the edition of the Olympics, as high as $40 billion.
The sports market, with its lucrative nature, has to be compensated with high wages. This is especially true at the highest level of sports. To justify the high returns in sports, the return of the capital, which is raised by the sports organizations in their high-level activities, are given back to both athletes and administrators (such as coaches and managers in clubs). These can be explained by the ideas of abstinence and risk.
Through the tests of the factors above, it could be observed that each of the sports markets operate as a monopoly, if not of a highly monopolistic market structure. As a result, it affects the market, in terms of inefficiencies.
Abstinence is the idea of restrain in using too many resources, in any given organization. In the case of a sports club, rational managers, for instance, have to abstain Implications of Sports as a Monopoly from using too much capital on building grandiose stadiums that could be used to develop new players. Sports, as a monopoly, result in inefficiencies in the market. For the firms in the sports market, it is subjected to However, in this case, the risks of the sports industry are the revenue function, the inverse demand function in clearly high. It is highly uncertain of how players do in which the people are willing to pay for sports and associcompetitions, as they are subjected to injuries and differ- ated products. It can be seen in Diagram 1 below. ent psychological, physical and weather conditions. For example, in Major League Baseball, the top sports league The demand for sports is affected by its elasticity of defor baseball in North America, the average length of a mand, the extent of change in the quantity demanded of a career in the league in 5.6 years. It is indeed hard to good or service, like sports, in response to the change in evaluate a sports talent, and his/her fit in the field. price. With a higher output in sports products, demand elasticity also diminishes. As there are only so few people organizing or playing the top tiers of sporting competitions, capable of putting in To maximize profits, the marginal revenue (MR) curve their best performance in front of a global audience, the meets the marginal cost (MC) curve. At this point, assumsupply of such sportspeople is extremely scarce. ing the monopolists in the sports industry sets a single price for all its users, it will sell Qm of sports products, at Given the limited supply and high demand in such cases, price Pm on the demand curve. If the sports industry had it helps explain the high wages top athletes earn today. been a free-for-all contestable, competitive market, Qc of For example, the average athlete playing in the English sports products would have been priced at price Pc inPremiership earns £676,000 (US$1,100,000) every year. stead. Even as the producer gains the most producer surplus (the difference of price which the producer is willing to sell and will get) in this arrangement, it will lose some producer surplus in the part below price Pc and above the
Sports and venues The sports industry is an expensive industry. It is very difficult to minimize costs associated with big-time sports events; the costs of staging big, top sports events that features the world‟s best athletes can run extremely high. For example, Montreal alone incurred $1.61 billion in debt, while staging the 1976 Summer Olympics, just by building their showcase Olympic Stadium alone. Its iconic architecture can hold as many as 78,322 people, demonstrating its immense scale of production (of holding many people for sports events). As a result, sports events are natural monopolies. The top -tier championship events are usually held regularly every 4 years, with very few cases of rival tournaments. The previous rival tournament to the Olympics, for example, was last held in 1984 Friendship Games by the Soviet Union, for political reasons against the United States, which held the Summer Olympic Games in the year. So, for large-scale sports events that provide the stage for the world‟s sportspeople to compete against each other, their minimum efficient scale is, practically, the
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MC curve. Even more consumer surplus (the difference of what the consumer is willing to pay, but end up not having to pay) is also lost. The part bounded by prices Pm and Pc, Pm, Pc and Qm is transferred from the consumer to the producer. In addition, the part between the demand curve, Pc and Qm below is simply lost as well. This is the case where both the consumer and producer both lose benefits, in the deadweight loss situation. This results in the sports market becomes allocative inefficient.
Sport and auxiliary products
Sport, as a multi-faceted industry, has different aspects – even including market structure.
Sports and Subsidies
Even as a heavily regulated industry, there are manufacturers who manage to fit the regulations of the sport. The equipment used in top-notch sport is widely copied in semi-formal or casual games.
Given the high levels of wage and barriers of entry to sports, sports are operating in an inefficient market. As mentioned above, there is possible under-production in sports. If there is totally no state intervention, there will be no sports activity in less prominent sports that are not popular, or not as well funded.
Hence, in this case, the supporting or auxiliary products can be considered as an industry of perfect competition. It can be seen in competitors coming in and produce sporting equipment, with reasonably low barriers to entry. They come in the form of fixed costs of producing equipment for producing such goods.
In just one example, this is true in women‟s sport, which is given less attention than men‟s sports, even in professional levels. Women have a higher incidence of not given opportunities to perform their best physical performances in sports as compared to men. This is why, in advanced countries like Australia, the government actively supports female participation in sports. Australia has a Sport Leadership Grants and Scholarships for Women program, which supported more than 16,000 women since its inception in 2002 with a total funding allocation of $3.3 million.
Conclusion The future of sports is bright. The current operating structure of sports, though inefficient, is supplemented by governments‟ involvement in the industry. In addition, there are always people interested in sports, and willing to commit themselves to the best of their physical conditions. Besides, rapid growth around the world for the sports market, with innovations in technologies, the sports industry is poised to bring sports around the world, more rapidly. In a Forbes article, it raises the possibility of new professional sports franchises around the world, particularly the world‟s premier basketball and ice hockey leagues – possibly bringing even more revenue and attention for them and their leagues. This can be explained by increasing viability of countries around the world, to cooperate around one central sports structure, featuring the best talents around the world. The same could be said for sports opportunities in other sports that will be popular, with the increasing spread of sports globally.
Reference:
Diagram 2: Supply curve with external benefits As seen in diagram 2 above, with governmental funding, the sports market will be corrected from an actual equilibrium, from the original price of Pp and original quantity at Qp, to a new ideal equilibrium at price Ps and quantity Qs. Through subsidies that cover the cost of supplying more of a socially desirable good (e.g. female sportspeople) at the price difference Ps-Pp, the supply of the good will meet social demand.
http://www.inspirational-quotes-motivate.com/ sports_quotes.html http://www.sustainablescale.org/attractivesolutions/ understandinghumanhappinessandwellbeing.aspx http://www.business.duq.edu/programs/sportsmarketing/ about.htm http://www.pwc.com/gx/en/entertainment-media/pdf/ Global-Sports-Outlook.pdf http://en.huanqiu.com/business/industries/201103/637703_2.html http://most-expensive.net/sports-teams http://www.espncricinfo.com/ipl/content/story/333193.html http://www.sciencedaily.com/ releases/2007/07/070709131254.htm http://blog.nielsen.com/nielsenwire/media_entertainment/ beijing-olympics-draw-largest-ever-global-tv-audience/
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