NFL lockout may be regarded as one of the most prominent economic events in the world of sports in 2011. The reasons for the lockout are analyzed from various perspectives, and the economic consequences of these events are serious enough. The economic theory that may be applied for the NFL lockout is the concept of the economic demand effect. Other theories are also touched upon, however, the demand effect is the most evident and demonstrable. Hence, the paper aims to analyze the demand effect caused by the NFL lockout and consider the assessment of the economic consequences caused by the lockout.
The Sherman Antitrust Act is regarded as the key reason for the lockout. This is closely associated with the monopolistic trade activity, and NFL was accused in the attempt to monopolize the industry, and fix the prices. This caused the lockout, when NFL refused to deal with its employees, as well as players. Hence, 32 teams of the NFL are not allowed to train in the stadiums, and in accordance with the data provided by the trade union, the lockout caused the 12% pay cut for all the employees. In general 115 000 jobs are affected by these events. The total costs of the lockout are approximately $ 160 million for each NFL city. Barndt (2004) claims that if a football season is rescinded, the costs for team owners will increase essentially. This will inevitably influence salaries, the infrastructure maintenance and development, as well as a decrease in demand in this sphere.
In accordance with the general economic principles, the increase of the losses in a particular sphere causes the lowering of the consuming capability among workers who are engaged in this sphere. Therefore, 115 000 workers jointly with team players, and team owners will get lower incomes that would inevitably cause the decreased demand.
From the theoretic perspective, the actual value of the lockout may be explained by the fact of stimulating the economic barrier development. Since such an amount of workers, players and owners will get lower incomes, and some of them will be fired, the consumption capacity of this part of the working population will fall. In accordance with the economic principles, the demand for the consumer goods will be decreased, hence, the US economy will experience lesser income. In accordance with the research by Lai et.al. (2008, p. 341):
The negative slope of the demand curve is due to the substitution and income effects. If the relative price of a good falls consumers will substitute that good for more expensive goods that will buy more of the good whose relative price has fallen and less of the other goods. This is the substitution effect. When the relative price of a good falls, the consumer can buy the same bundle of goods as before the price decline and have some money left over.
In the light of this fact, it should be emphasized that the actual significance of demand decrease is explained by the fact that the money gained by the state economy as a result of the demand revenues, is often used for increasing the number of consumption goods. The income effect fully defines the income power.
By the graph, the decrease in the demand will cause the growth of prices, as well as the shift of the supply curve. This is explained by the fact that the decreased demand makes the companies increase prices. As a consequence, this step decreases the consumption capacity of the population.
In accordance with the statement by Boe (2009), since the overall money market is regarded as the strict supply and demand system, the NFL lockout is closely associated with the fact that owners and employees will have to shorten their expenses. The supply that is influenced by the deceased demand is featured with the vertical curve. Therefore, if the supply and demand are fixed, the interest rates, as well as the prices for consumer goods will be inelastic. On the other hand, the elasticity of the supply may be defined by the actual demand and income levels.
Considering the opportunity of the demand decrease, the notion given by Boe (2009l, p. 138) should be stated:
Demand and supply relations in a market can be statistically estimated from price, quantity, and other data with sufficient information in the model. This can be done with simultaneous-equation methods of estimation in econometrics. Such methods allow solving for the model-relevant “structural coefficients,” the estimated algebraic counterparts of the theory. The Parameter identification problem is a common issue in “structural estimation.” Typically, data on exogenous variables (that is, variables other than price and quantity, both of which are endogenous variables) are needed to perform such estimation.
Since the lockout is closely associated with the matters of the simultaneous equation of the incomes and losses, the general value of this process may be explained from the perspective of structural estimation of the overall sports sector of the economic system. Additionally, the aggregate demand market is analyzed from the perspective of the number of the consumers’ goods demanded. The function of price also requires the supply data; however, the aggregate demand function is often used to reveal the consuming capacity of the population, which, in its turn, is used to formulate prices. The equilibrium may be achieved by analyzing the losses of the team owners, and employees of the NFL.
The factor of mass production is often used for the proper assumption of the supply and demand levels as this is one of the most independent and not subjected to supply and demand restrictions. The price response appears to be valid, however, the demand curve will not be. As it has been already stated, the decreased demand causes the increased price, as the incremental costs are dependent on the average costs. If there is excess capacity, the prices of most goods will not be changed significantly. Therefore, business cycles should be considered, and if the prices reach their maximum level, the consuming capacity expansion will cause the necessary efficiency level, and the demand shift will be compensated by the increased effectiveness.
The NFL lockout is mainly regarded as an event of an economic nature, and the economic theories that apply to this case are mainly associated with demand levels. Therefore, the decreased incomes and increased losses within the entire industry will cause changes in the prices of consumers’ goods. Hence, the lockout that affects 115 000 workers will have to be considered from the perspective of aggregate demand and supply.
Barndt, W. D. (2004). User-Directed Competitive Intelligence: Closing the Gap between Supply and Demand. Westport, CT: Quorum Books.
Boe, E. E. (2009). Long-Term Trends in the National Demand, Supply and Shortage of Special Education Teachers. Journal of Special Education, 40(3), 138.
Lai, L. W., & Yu, B. T. (2008). The Power of Supply and Demand: Thinking Tools and Case Studies for Students and Professionals. Hong Kong: Hong Kong University Press.