Friday, July 29, 2022

LIV Upsets the PGA Monopsony

One way to know if an organization has market power is to see how they respond to entry. LIV Golf is a well funded alternative to the PGA tour. But the clearest sign of the PGA's market power is not on monopoly output markets. Golf broadcasts compete with many other sports broadcasts for the marginal viewer. It is on monopsony input markets. Since there had been very few alternatives for pro golfers, the prize money from PGA tournaments was less than the value that the golfer talent brought to the organization. Total PGA tournament prize money has been hovering around $350 million per year. LIV has been able to siphon off some star talent by offering $225 million in prize money this year and $405 million next year. The PGA is responding to this input competition by significantly raising its prize pools across multiple tournaments next year. It is also trying to raise its rival's costs  by raising the stakes for golfers who work for its competitor.

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