In the vast majority of my blog posts, I’m pretty sure of what I think about whatever issue I’m posting on.
This time, I’m less sure.
The basic Gary Becker model of the economics of discrimination, which he laid out in his 1957 book titled The Economics of Discrimination (which was based on his Ph.D. dissertation at the University of Chicago), is that those firms and employers that discriminate on grounds that have nothing to do with productivity will bear a cost of discriminating. That doesn’t mean that they won’t discriminate; it does mean that they pay a cost for doing so and that the cost might be large. This market incentive not to discriminate limits the amount of discrimination.
Linda Gorman did an excellent job of explaining the Becker model in “Discrimination,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.
I became quite familiar with the Becker model when I used his book as one of the two texts in a half-semester Labor Market Institutions course that I taught at the University of Rochester’s Graduate School of Management (now the Simon School) in 1977.
Becker uses black and white as the major categories in his model. This is quite understandable given the issues of discrimination in the 1950s.
But the model is more general. It shows that anyone who discriminates on any grounds other than productivity will bear a cost of discriminating. Robert P. Murphy, in “The Economics of Discrimination,” Econlib, August 2, 2010, lays out the issue nicely, with examples that have nothing to do with race. (He also handles the issue of what happens when an employer, say a restaurant owner, discriminates in response to customers’ demands for discrimination.)
Here’s what I’m wondering: How well does the Becker model hold up currently in professional sports?
In many sports, especially NBA basketball, the owners are allowing and possibly encouraging players to push political views that a large percent of customers are likely not to appreciate. I’ve watched a few NBA games lately even though my Warriors are not in play, so to speak. The players have slogans on the backs of their uniforms. They get to choose from a wide variety of slogans including my favorites, “Peace” and “Freedom.” So far I haven’t seen anyone with those slogans on their backs, although I’ve watched only segments of 3 or 4 games. The most common seem to be “Black Lives Matter,” “Equality,” “I Can’t Breathe,” and “Vote.” One kind of creepy slogan, which, fortunately, I haven’t seen anyone wear is “Group Economics.”
One obviously can interpret these slogans in various ways. “Black Lives Matter,” for example, could simply mean “black lives matter.” But it could also refer to the organization Black Lives Matter that has a strong social and political agenda. “Equality” could mean equality before the law but it also could mean “let’s take wealthy people’s money and give it to the new politically empowered.” And you can bet that “Vote” doesn’t mean “vote for Donald Trump.”
My guess is that many NBA fans will be turned off by such slogans. Let’s say that 30% of fans are turned off. How will they react? If it’s by turning off the TV (going to games is irrelevant since we can’t do that anyway), the NBA will pay a cost.
How will the NBA react? Will the cost be big enough to cause it to change its behavior?
I don’t know.
Addendum: For my take on how beautifully the market worked to limit discrimination by a white racist owner against black basketball players, see “Donald Sterling and the Economics of Discrimination.”
Update
I see that Jason Whitlock has addressed this. He also provides his answer to my question, an answer that I find unpersuasive:
BLM is immune to market forces. The global economy combined with Big Tech to create a concentration of wealth that has curtailed capitalism’s ability to punish bad business practices. The billionaire backers of BLM can offset the financial losses of the institutions hurt by the movement. The NBA is not much different from the Washington Post, the legacy media platform funded by the richest man in the world, Jeff Bezos. The Post does not need to adhere to long-established industry best practices. The Post is a spoke in the wheel of a much larger machine.
So is the NBA and the NFL.
My view is that billionaires don’t like losing money, which is one of the main reasons they’re billionaires.
READER COMMENTS
Jon Murphy
Aug 17 2020 at 2:19pm
A few thoughts:
First: I don’t think “going to games” is entirely irrelevant. For this season, yes, but down the line, probably not. If some subset of those 30% are completely turned off from the game because of the politicking, then the NBA could see a decline in ticket sales.
Second: Even if the NBA faces a cost from some of the fans not attending, they could get a benefit in terms of better players. The NBA competes with the NFL, MLB, and (to a much lesser extent) NHL for players. Many of these guys are two- or three- sport athletes in college and they choose one sport to play professionally. If the NBA is more accommodating to minority players than, say, the NFL or MLB, then that could give NBA teams an edge signing those players, allowing them to potentially put a better product on the court. While some fans may leave, other fans could enter to watch more entertaining games.
Third: Since the cheating scandal about 10 years ago, the NBA has been reeling. Even if 30% of fans leave (or even less), that could be a death knell for the NBA. They might be trying to lure disaffected fans from MLB/NFL (both of which have long had issues regarding race. See the current controversies surrounding the Washington Redskins and the Cleveland Indians team names).
zeke5123
Aug 17 2020 at 3:33pm
Prof. Henderson,
A few thoughts:
1. It doesn’t seem like the NBA is discriminating (i.e., it isn’t forgoing talented white basketball players for less talented black basketball players). Instead, it seems to be allowing players to signal what NBA culture stands-for. TO me, this looks (cynically) like branding.
2. The point of branding, in part, is to separate yourself. The NBA isn’t trying to be all things, to all people. It is betting there is a large enough group of people that will love the branding that it can afford to lose the others who don’t like the branding. That is, in an area of numerous entertainment, the goal isn’t to be all things to all people, but an important thing to enough people.
3. It isn’t obvious that the NBA is wrong on who their market is (i.e., younger, more progressive, less white). But it also isn’t obvious that such market is large enough to sustain the NBA.
4. Thus, I really don’t think this tells us anything about the Becker’s model. Seems like the NBA is making a branding decision; that decision might be bad but it doesn’t really tell us anything about discrimination.
David Henderson
Aug 17 2020 at 4:02pm
Your points are all on point. Thank you.
So it’s not literally about discrimination. But I still think the Becker model is relevant.
I think that’s right.
Then you said:
I think that’s right too. It isn’t obvious to the NBA and they have a far larger incentive than I have to get it right. Still, my guess is that they got it wrong.
KevinDC
Aug 17 2020 at 4:34pm
A few preliminary and highly underformed thoughts –
My first reaction is to view this as an instance of customer discrimination in the market, and how employers might respond to that. The key is whether, and to what degree, customers might discriminate among entertainment options based on the expressed political views of the entertainers – in this case, professional athletes.
This in turn raises a couple of questions in my mind. How elastic is the demand for sports entertainment? My sense is that it’s pretty inelastic, at least in part because of lacking good substitutes. If, for me, Coke and Pepsi are perfect substitutes, then I might easily discriminate between the two based political views associated with one or the other. But if I’m a dedicated football fan, close substitutes might not be readily available. This makes it more costly for me to engage in that kind of discrimination, which makes it more likely that I continue to tune in to football games despite my disapproval of the athlete’s political views.
So that could be what’s operating in the minds of the owners of sports teams. They might well assume (for all I know correctly) that NBA fans are a highly dedicated lot, and even if 30% of fans find the political slogans offputting, only a tiny fraction of them will actually be willing to pay the personal cost of giving up the NBA. Meanwhile, the costs of alienating your main asset (the athletes) by preventing them from signaling support for these causes could be expected to be very large.
Although, upon a bit more reflection, I realize what I just wrote is more about why they might predict the costs will be small. But that doesn’t answer your fundamental questions of “How will the NBA react [if the costs are large]? Will the cost be big enough to cause it to change its behavior?”
I’m skeptical of this too, for reasons akin to path dependence. Once you go down a particular road, even if it turns out to be a losing choice, it can be too costly to reverse course. And for the owners of various sports teams, trying to pull a U turn on this issue might be too costly. For one, it would certainly alienate the players. But it also just isn’t a good look in general – “Initially we were in favor of our athletes expressing support for these causes, but it turns out that them doing so is costing us a lot of money so we’re going to prohibit them from expressing their views any longer.” Pulling that move probably won’t bring you back into the good graces of anyone you’ve already alienated, and will likely just cause a further backlash against you.
Mark Z
Aug 17 2020 at 4:46pm
I think the costs of this are pretty small, in part because the NBA has something close to a monopoly on basketball, at least at that level of quality; and even if there were other leagues that could sprout up equal in quality, most fans are attached to specific players and teams in the NBA.
Another point worth noting: NBA teams are mostly owned by a few rich individuals, not publicly traded companies or funds with lots of investors trying to maximize returns. Owning a sports team, I gather, is largely a status symbol for ultra-rich people, it’s not just about profit (many owners continue to own their teams even operating at a loss). Many owners will be willing to lose money to gain status or promote their favorite causes (many of them have literally given away large sums of money to their favorite causes, so this wouldn’t really be surprising) and many more may not be willing to suffer the loss of status that might come from the profit-maximizing strategy.
Douglas Eckberg
Aug 18 2020 at 10:03pm
Mark Z: I agree with you that ownership of an NBA (or other professional sports) team is at — least in part — possession of a status symbol by highly wealthy people. However, in actuality almost all those teams are highly profitable and growing in value (link to follow). The owners are getting both enhanced status honor and increased wealth. It would be interesting to see what would occur if there were a reduction in one or the other of the two — but not both.
“https://www.forbes.com/sites/forbespr/2020/02/11/the-business-of-basketball-forbes-releases-22nd-annual-nba-team-valuations/#1e457da175ff“
Rob Rawlings
Aug 17 2020 at 8:43pm
My initial thoughts were along the lines expressed in zeke5123’s comment above. Given his comment and your mostly positive response to it I am not really seeing why the Becker model is relevant here.
May I ask for calcification ?
Rob Read
Aug 17 2020 at 8:45pm
Clarification rather than ‘calcification’!
David Henderson
Aug 17 2020 at 10:59pm
Sure, assuming you meant, as Rob Read, said “clarification.”
It’s similar in sprit to the discrimination model. A business does something that doesn’t enhance productivity but instead upsets a large percent of its customer base. It bears a cost.
Rob Rawlings
Aug 18 2020 at 12:51am
Thanks and sorry for the name confusion.
The Becker model (from my 10 minute google) explains how businesses that practice racial discrimination in hiring incur costs. I would certainly accept that it would be somewhat related to claim that “A business [that[ does something that doesn’t enhance productivity but instead upsets a large percent of its customer base [. It] bears a cost.”.
Its possible that the NBA with its current policies (as you describe them) is going to lose revenue. However the results are not yet in so its not clear whether their marketing strategy is a hit or a miss. I certainly see no reason to believe their polices are based on any kind of racial (or other) prejudice. At worse they just want (perhaps influenced by their workforce) to be part of the zeitgeist and this has caused them to make bad business decisions
So, for me at least. to apply a model that shows that racial discrimination in hiring causes discriminators to (potentially) incur costs to a situation where a business entity markets its product in a particular way (and before the results are even in), seems a little off-base to me.
Phil H
Aug 18 2020 at 1:56am
I would hope for a slightly more free speech-oriented take on this. Of course, it’s not a pure free speech issue: employers are perfectly at liberty to restrict their employees’ speech during the course of business. But in general we would assume that an employer would do so only to the extent necessary for the business. In particular, we usually hope that businesses will not restrict their employees’ political speech – and that’s certainly true of writers on this site, who worry about PC restrictions on speech in Silicon Valley, for example.
So I would expect the baseline position for someone interested in liberty to be: ideally the employer should not be intervening in this political speech at all.
Ghost
Aug 18 2020 at 12:04pm
I don’t know if the cost of allowing slogans is large or small.
If it’s large, then I would expect the NBA (really, the team owners in collusion) to stop allowing slogans. They would do this by saying that of course the issue is not about freedom of speech – players can say whatever they want off-court – but that the plethora of slogans is damaging to a core aspect of each team’s brand, which is that all its players are passionately united in playing for “the uniform”; there is and can only be one Warriors uniform, and players certainly aren’t allowed to design their own.
PS on reflection this argument should leave open the option that individual team owners could adopt their own slogan (so that all Warriors would have to wear “Vote” on their uniform) – but that would be the business-owner’s choice, and probably not costly to other teams.
PPS and individual players who felt very strongly could change their own names, e.g. from Smith to Black Lives Matter.
Thomas Hutcheson
Aug 18 2020 at 4:23pm
Maybe an even larger percentage of fans would be put off by owners that prevented players from wearing slogans. Perhaps the equilibrium will be some teams in which players wear “leftist” slogans and will attract “leftist” fans while other teams will wear “rightest” slogans and attract “rightest” fans, like MSNBC and Fox attracting different viewers.
Another worrying development flowing from the President’s politicizing the NFL players’ kneeling protest.
Michael
Aug 18 2020 at 5:40pm
A few thoughts:
1. Whitlock’s response (right or wrong) implies that the Becker model is wrong. Well, not precisely wrong, but it suggests that there are other forces at play. If the Becker model states that “firms and employers that discriminate on grounds that have nothing to do with productivity will bear a cost of discriminating,” I read Whitlock as saying that, for reasons, it doesn’t always work out as Becker would have predicted. But is Whitlock acknowledging limitations of the Becker model or saying “here is one special case where it fail.”
2. “Education reform” is another of the available slogans.
3. Colin Kaepernick is another example of a league that addressed a somewhat comparable situation very differently. There was never any serious question that Kaepernick was certainly one of the world’s 60 best quarterbacks but he was still forced out of the NFL (another case where the Becker model either fails or is trivially true). But after the NFL effectively banished him, Nike handed him a boatload of endorsement money. I think this suggests that the financial dynamics could be more complicated, in the sense that there is potential revenue to be lost or gained on both sides of the issue.
4. As a fan, I find the slogans both weird and inconvenient (because more of my watching attention is spent on figuring out which player is which). If I had to guess I would say that after this year, the league will move away from these, for any number of reasons.
Tim Kern
Aug 18 2020 at 9:45pm
Whatever the fallout, we certainly won’t know enough to separate it from the noise generated by the pandemic.
By the time “normalcy” returns, the architecture of pro sports will have been altered into a model different from 2019’s, so we will not be able to do any meaningful ceteris paribus observation, since the ceteris won’t be anything like paribus.
David Seltzer
Aug 20 2020 at 4:09pm
The Becker model, according to Gorman, has relevance if the NBA’s policy attracts enough fan based disfavor. If losses get to where the last dollar spent exceeds the last dollar of revenue, I suspect the NBA will alter its policy. I think Becker’s model, while insightful, is an application of classic supply and demand and marginal analysis. To wit. Marginal cost equals marginal benefit.
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