The Louis-Schmelling Paradox and the League Standing Effect Reconsidered

Fifty years on we examine two key propositions in Neale's (1964) "Peculiar Economics": the need for competitors in sport to have opponents of similar ability in order to earn large revenues and the effect of frequent changes sports leagues' standings on consumer demand. We develop a consumer choice model under uncertainty, and a structural econometric model, to motivate and test these ideas. Unfortunately, neither receives much empirical or theoretical support relative to alternative factors affecting consumer choice like loss aversion and home win preference.