Question

In discussing the NCAA, the late Nobel Laureate Gary Becker, an economist, wrote, "It is impossible for an outsider to look at these [NCAA] rules without concluding that their main aim is to make the NCAA an effective cartel that severely constrains competition among schools for players." a. What is a cartel? In what ways does the NCAA act like a cartel? b. Who gains and who loses as a result of the NCAA acting like a cartel? If you are a student who does not play intercollegiate sports but who is enrolled at a school with prominent sports teams, such as the University of Alabama or Ohio State University, does the NCAA acting as a cartel make you better off or worse off? Briefly explain.

Short answer

A cartel is a group of independent entities who collaborate to limit competition. The NCAA acts like a cartel by setting rules that limit competition amongst universities for athletes. Beneficiaries of this behavior could be universities, while athletes might be put at a disadvantage. The effects on non-athletic students at high-profile sport schools could vary greatly depending on their attitudes toward collegiate sports.

Step-by-step solution

Definition of a cartel

A cartel is a group of independent market participants who collaborate with each other in order to improve their profits and dominate the market. This is often done through methods such as price fixing, limiting supply, or other tactics that stifle the competition.

Role of NCAA as a cartel

The NCAA acts like a cartel in that it limits competition among universities for athletes. It does this by setting strict rules and regulations about recruitment, scholarships, and benefits, which all the member universities must follow. By doing so, top athletes are evenly distributed amongst schools rather than concentrating in the wealthy or popular schools, fostering a level of parity that would not exist otherwise. This overall improves the competitiveness of NCAA.

Beneficiaries and losers from NCAA's cartel behavior

The universities can benefit from this as it allows them some level of certainty and expectation when recruiting athletes. Lesser-known universities can also compete against well-known universities for top talent that they might not otherwise be able to recruit. However, athletes may be disadvantaged as their choices and potentially their earnings from playing at university level are restricted by the NCAA's rules and restrictions.

Impact on non-athletic students at high profile sports schools

The effect of NCAA's cartel behavior on non-sporting students can be subjective depending on how much value the student places on the school's sports performances and culture. For some, a strong sports performance may build a strong sense of school spirit and community, improving their college experience. For others, especially those who don't care about collegiate sports, it might have little or no impact. Moreover, there might be negatives if the university disproportionately invests in athletics at the expense of academics due to the NCAA cartel behavior.

Key concepts

Cartel Definition

When we talk about cartels in an economic context, we're referring to an agreement between competitors in the same industry. This agreement aims to increase profits by reducing competition. How do they accomplish this?

• Price fixing: Cartels may agree to sell their products at a set price, avoiding undercutting each other.
• Limiting supply: By controlling the amount of a product available, cartels can maintain higher prices.
• Dividing markets: Members of a cartel may agree to stay out of each other's territory or niche markets.

Such actions are generally seen as detrimental to market competition and are illegal in many countries. However, when discussing cartels, it's essential not to simply view them through a negative lens; cartels can sometimes arise in situations where collaboration is seen as beneficial for maintaining standards or parity, such as in sports leagues or professional organizations.

Market Competition

Market competition is what fuels innovation and fair pricing in a healthy economy. It occurs when multiple businesses vie for the same group of customers, offering similar products or services. The tension between these companies drives them to improve their offerings, reduce prices, and find new ways to differentiate themselves.

Competition ensures that no single entity has total control over a market, preventing monopolies and fostering a diverse market. In the context of collegiate sports, market competition can play out in the way schools compete for talented athletes, aiming to improve their teams and their visibility in the sports world.

Athletic Recruitment

Athletic recruitment is a vital aspect of college sports, with colleges and universities scouting and seeking to attract top high school athletes. The process is highly competitive, and schools make great efforts to pitch their programs as best suited for the athlete's development.

However, the NCAA has set clear rules and regulations that schools have to abide by during recruitment to prevent any single institution from gaining an unfair advantage. This leads to a more balanced competition but can also mean that athletes have limited options for negotiation, which could potentially affect the quality of opportunities available to them.

Intercollegiate Sports Economics

The economics of intercollegiate sports can be complex involving various revenue streams such as broadcasting rights, merchandise sales, and ticket sales. These sports programs, particularly at high-profile schools, can significantly impact a school's reputation and financial health.

In an NCAA-regulated environment, where it acts similarly to a cartel, the distribution of athletic talent is manipulated to ensure a more level playing field across member institutions. This impacts the economics of intercollegiate sports by ostensibly maintaining a competitive balance. While this benefits smaller programs and ensures fan interest is spread across the league, it can be argued that it restricts the free market's natural operation, which might be more beneficial to schools with larger athletic budgets and more substantial fan bases.