Essay/Term paper: The combines act

Essay, term paper, research paper:  Economics

The Combines Act

J.C.H. Jones's article "The Economics of the National Hockey League" (1969)
purpose is to explain through simple micro economics that the prime motive of
professional hockey team owners is profit maximization. The owners argue that
their main interest is "for the love of the game," not the financial benefits of
owning a professional sports franchise and to avoid government regulations such
as the Combines Act (note 1).

An article written in 1982 by J.A. Schofield entitled "The Development of First
Class Cricket in England," states the behavior of sport cartels. Three
hypothesises are used to explain the behavior described by Schofield, number two
being developed by J.C.H. Jones (1969). (1) The profit maximization hypothesis.
(2)The joint profit maximization hypothesis that the entire cartel (league)
strives for. This hypothesis does not incorporate non profit objectives that
influence group behavior. (3) The utility maximization model that allow for many
possibilities usually compromising arguments such as the success of the team at
a given year and paid attendance for the team's venue.

By explaining the frame work of a professional sports league Jones introduces us
to factors that make an organized league function, which seems quite familiar to
any other monopolistic markets. Since no team can create any revenue by
themselves they must form a coalition with another club to produce a profit
generating output, namely a hockey game. Other clubs enter this coalition thus
creating a formal league which we call the National Hockey League. Jones then
states how revenue is generated in the N.H.L and how it is affected by certain
factors.

A theoretical model of the N.H.L is created by Jones with all things being equal,
creating an equilibrium amongst all clubs. The model is then adjusted to real
life variables that turns his theoretical model into what we know as the N.H.L.
Jone's variables includes the incentive for teams to win (this being the Stanely
Cup), different quality of players, the amateur draft (a draft at the end of the
season which amateur players a selected, last place team gets first pick and so
forth), and player redistribution(trades).

By applying microtheory Jones clearly presents his argument which I was able to
understand with my current knowledge of microeconomics. Jones examines the
revenue side of an individual team using the usual variables tastes, prices,
incomes, quality and substitutes. On the supply side Jones stresses that the
major element is the human inputs namely the hockey players. The data that Jones
used was team statistics such as their final rank at the end of the season and
the paid attendance as a percentage of maximum seating capacity. By using this
data Jones is able to establish trends that arise from season to season, thus
helping him establish his argument on profit maximization.

Jones article is meaningful at the moment because of the current labor disputes
amongst the players and the owners. "The Economics of the National Hockey
League" states what the N.H.L. should be and also indicates what is wrong with
its current status. The current issues pressing the N.H.L. such as a salary cap,
revenue distribution, and league expansion are all measures that the team owners
are striving for. By installing these measures into the N.H.L. the equilibrium
achieved in Jones's theoretical model would be easier to achieve thus maximizing
the owner's profits. One variable that Jones could not foresee in 1969 is the
outrageous salaries being paid to the players and the proposed salary cap from
the owners. I believe that Jones's argument that owners motives are purely
geared towards profit maximizing would be stronger if the idea of a salary cap
was present then.

Jones concludes that the National Hockey League is profit driven and clearly
posses monopolistic qualities. Upon proving this through simple micro economics
the N.H.L. can fall under certain government regulations such as The Combines
Act. Since this article was written in 1969 many changes have been made to the
governing bodies that control the National Hockey League however its functions
can still be explained through micro economics.

REFERENCES

1.The Combines Act. R.S., C314 s.1, 1966

2. J.C.H. Jones, "The Economics of the National Hockey League", Canadian Journal
of Economics, vol 2 (February 1969), pp. 1-20

3. J.A. Schofield, "The Development of First-Class Cricket in England: An
Economic Analysis", The Journal of Industrial Economics, vol. 30, no.4 (June
1982), pp.337-360