Executive pay regulation is widely discussed as a measure to reduce financial mismanagement in corporations. We show that the professional team sports industry, the only industry with substantial experience in the regulation of compensation arrangements, provides valuable insights for the regulation of executive pay. Based on the experience from professional sports leagues, we develop implications for the corporate sector regarding the establishment and enforcement of executive pay regulation as well as the level, structure, and rigidity of such regulatory measures.

This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network e¤ects operate from the fan market to the sponsor market, while positive or negative network e¤ects operate from the sponsor market to the fan market. Clubs react to these network e¤ects by charging higher (lower) prices to sponsors (fans). The size of these network effects also determines the level of competitive balance within the league. We further show that clubs benefit from stronger combined network e¤ects through higher profits and that network externalities can mitigate the negative effect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities. Abstract This paper develops a model of a professional sports league with network externalities by integrating the theory of two-sided markets into a contest model. In professional team sports, the competition of the clubs functions as a platform that enables sponsors to interact with fans. In these club-mediated interactions, positive network e¤ects operate from the fan market to the sponsor market, while positive or negative network e¤ects operate from the sponsor market to the fan market. Clubs react to these network e¤ects by charging higher (lower) prices to sponsors (fans). The size of these network e¤ects also determines the level of competitive balance within the league. We further show that clubs bene…t from stronger combined network e¤ects through higher pro…ts and that network externalities can mitigate the negative e¤ect of revenue sharing on competitive balance. Finally, we derive implications for improving competitive balance by taking advantage of network externalities.

This paper develops a model of a cooperative enterprise and compares it to a vertically separated market. In our model of a multi‐stage production process, agents can acquire costly knowledge to decrease production costs. Our model shows that the cooperative acquires less non‐generalizable knowledge than the market, but more generalizable knowledge if the large member in the cooperative receives a sufficiently large share of the cooperative's profits. Additionally, we derive that the cooperative generates larger aggregate surplus than the market if the influence of generalizable knowledge on production costs is large. Copyright © 2012 John Wiley & Sons, Ltd.