College Sports is Now Just a Monopoly with First-Degree Price Discrimination and a Labor Market with Lopsided Bargaining Power

And it sucks (for the consumer)

[This post won BEST RATIO OF HOW INTERESTING THE POST IS COMPARED TO HOW INHERENTLY INTERESTED I AM IN THE UNDERLYING TOPIC in Adam Mastroianni’s Second Annual Experimental History Blog Post Competition, Extravaganza, and Jamboree. Thank you Adam for providing the impetus to get EconSquawk started!]

If you’re a college sports fan, you’ve probably noticed a few changes to your favorite sport. There’s basically a pre-pandemic college sports, in which sports fans were happy because they could get angry at their team, opposing teams, and the refs, and a post-pandemic college sports, in which sports fans are unhappy because they now have to be angry at their team, opposing teams, the refs, and the entire collegiate sports system (because we found out that the people who were supposed to be in charge of designing and implementing the collegiate sports system didn’t have any power when it came to actual, uh, U.S. employment and anti-trust laws).

In April of 2021, the NCAA first allowed student-athletes (remember they are student-athletes, not athlete-students)¹ to transfer to another school without having to sit out a season before playing, thus decreasing the incentive to remain with your original team. In June of 2021, the NCAA lost a Supreme Court case and was required to allow student-athletes to earn compensation for their name, image, and likeness (NIL), which effectively legalized pay-to-play because student-athletes could sign a contract to “send a couple IG posts about mental health awareness” for a non-profit that was coincidentally founded by donors to a certain university. In May of 2024, the NCAA settled another lawsuit by allowing athletes to transfer an unlimited number of times without penalty (I don’t think I need to explain how this affects the incentive to stay loyal to your team). Finally in June of 2025, the NCAA settled another lawsuit, known as the House settlement, by compensating former players who played from 2014-2024 and allowing schools to pay up to $20.5 million per year to current players starting in July of 2025 (a value which will increase over time). And this doesn’t even get into conference realignment, in which the Big 10 had twelve teams and the Big 12 had ten teams for a few years (instead we now have UCLA playing Rutgers in a passionate in-conference rivalry).

So we started with college sports in 2019 where no one was paid (above the table), many players stuck around for four years, colleges developed young players to make them better over time, and some players became cult heroes to their fan bases because of their accomplishments (such as Myles Fox Morrissey²). We ended with college sports in 2025 where all the players are getting paid³, universities are hitting up their fans to ask them for money to pay their players, and many players are effectively mercenaries who transfer schools after every season. What happened?

Well in economist-speak, what happened is that we took a monopoly that charged monopoly prices and switched to a monopoly that practiced first-degree price discrimination. And as every economist knows with first-degree price discrimination, it sucks if you’re the consumer. So consumers (i.e. fans) are less happy than before. At the same time, we transferred essentially all of the bargaining power from coaches and universities to players, so all of the surplus that would theoretically be captured by the university when they practice first-degree price discrimination is instead captured by the players. So coaches and universities are also less happy than before. Players are really the only people who are better off under the new system compared to the old. But as we’ll see later, that might not even be true in the long run. So we took a system that provided a lot of joy to a lot of people and replaced it with…a worse version of the NBA. And how many people are watching the NBA these days?

Why Your Favorite College Is a Monopoly

Let’s explain all of these economic concepts. First off, why are college sports a monopoly? A monopoly is when a single firm is the sole producer of a good or service. I went to Xavier University (go Muskies!) for undergrad, and, well, Xavier University is pretty much the only firm out there that can produce Xavier basketball. In markets with competition, be it perfect competition or monopolistic competition, consumers can decide to buy another firm’s product if they think that a firm is charging too high of a price for the value of the product.⁴ But if Xavier starts charging too high of ticket prices, or it gets too expensive to watch Xavier games on TV (I’m looking at you Peacock — I’m not paying extra to watch Xavier play a terrible Seton Hall team), it’s not like I can go to the University of New Mexico and ask “hey what’s the price of your Xavier basketball games these days?”. UNM produces Lobo basketball, and Lobo basketball just doesn’t tickle my fancy the same way that Xavier basketball does. The key here is that the market is not college basketball, the market is [insert university] basketball, and there’s simply no substituting between the two.⁵

Now there is a tiny bit of a pressure relief valve in that many fans support a few different teams. While I went to Xavier (AKA the “Creighton of not near my parents”) for undergrad, I grew up a huge Iowa State fan (go Clones!) in the heart of Husker country (booo!) because both my parents went to Iowa State for college. So if Xavier starts putting every game on pay-per-view or throwing games to chase those sweet sweet gambling dollars, I could instead watch Iowa State basketball or just stick to Iowa State football (now if Iowa State football prices me out, I’m screwed, because Xavier eliminated their football program after famously losing to Marshall in the season after all Marshall’s players died in a plane crash).

So there are some aspects of competition that keep prices in check even though each school is a monopoly. But that doesn’t mean that schools don’t charge monopoly prices. One of the key features of a monopoly⁶ is that monopolies charge higher prices than firms in perfectly competitive markets. In a perfectly competitive market, a large number of producers sell identical products, producers are “price takers” (they take prices as given instead of setting their own prices), and there are no barriers to entering the market (such as needing an army of lawyers to navigate regulations or needing to get accredited when creating a university from scratch).

Think of commodities, such as wheat, corn, or soya beans. A farmer will sell their bushels of corn to a cooperative who will offer them the market price for corn — there is literally a “global price of corn” that the Federal Reserve tracks. And each corn-grower is selling an identical product — when they sell their corn to the co-op it will get mixed in with the corn from all the other farms; there won’t be a special silo for Once-Upon-a-Farm-brand corn. And there aren’t an insane amount of regulations on growing corn like there are on operating a bank — the U.S. standards for corn are only 3 pages and you could start growing some corn in your backyard if you wanted to (even though no grain elevator would buy your tiny amount of corn). Economic theory shows that perfectly competitive markets will drive the price down to the cost of producing a good.⁷

Monopolists, on the other hand, are “price makers”, in that they can set their own price because they’re the only firm producing the good. This still doesn’t mean that they can set their price infinitely high, however. The reason for this is that consumers don’t all have the same willingness to pay for the good the monopoly is selling.

Imagine for a second that the Cintas Center (where Xavier plays its home games) seats 10,250 people (as it did when I was a campus tour guide and rattled off that statistic on every tour) and that each seat is equally good (i.e. there is no difference in the quality of seat locations, which is obviously an unreasonable assumption but will help illustrate the point). There’s probably some rich guy out there who would be willing to pay $10,000 to see a Xavier basketball game, especially if Jay Wright came out of retirement for the Muskies to play a Villanova team with half the New York Knicks’ players. Now let’s say that the person who is willing to pay the second most to see the Muskies play Jay Wright’s Villanova would pay $6,000. If you can only charge one price for all seats, then you can sell one seat for $10,000 total (the rich guy) or you can sell two seats for $12,000 total ($6,000 for the rich guy and $6,000 for the other guy). Because you’re charging the same price for all seats (because we’re assuming the seats are all interchangeable), every time you want to sell an additional ticket you need to lower the price further, not just for the additional seat but also for every single seat you would have sold at the higher price.

Thus the monopolist faces two competing forces when changing their price: a lower price means less revenue per ticket, so lower profits, but a lower price also means more tickets sold, so higher profits.⁸ Whereas perfectly competitive firms are infinitesimally small with respect to the market as a whole, such that any increase in production has no impact on the price of the good⁹ (because there are a large number of firms), monopolies, such as [insert university] college sports, face a tradeoff when increasing production due to the fact that demand is downward sloping — in order to sell more of a product, such as tickets to a game, the firm has to lower the price. Because selling additional tickets requires lowering the ticket price, monopoly firms will sell fewer tickets and charge a higher price than an equivalent perfectly-competitive firm that can sell as many additional units as it wants without having to lower its price (because perfectly competitive firms take prices as given). This applies to all products that a monopoly sells, such as beer at games and apparel, in addition to tickets.

That was a lot of economic theory to say that you’re getting ripped off at the campus bookstore. That knit sweater with the script Musketeers didn’t cost $120 to produce, but you can bet your bottom dollar you’ll hand over that cash when you get your first real paycheck after graduating (which unfortunately for me was 6 years after graduating — the United Auto Workers Local 2865 didn’t exactly bargain for the greatest salaries for University of California teaching assistants)¹⁰. So schools were charging high monopoly prices for tickets and gear prior to all the changes in college sports, but they were still constrained by charging the same price to every fan (after accounting for the fact that seats with better views cost more — the key factor is that the seats/sweaters don’t change price based on who buys them). It wasn’t necessarily ideal from the fan’s perspective, because things were overpriced, but prices weren’t so outrageous that they might stop someone from being a fan altogether. Little did we know that it could be much, much worse.

Why Discrimination Is Great (If You’re a Monopoly)

Now let’s get to the fun part and start discriminating (on prices). I’ve been blabbering on about monopolies for eight paragraphs without talking about what changed. This is where the “collectives” come into play. The collectives essentially ask the fans of a university to donate money so that they can pay the players at that university. And they effectively ask: how much is winning worth to you? 50 bucks a month? Well you can just enter your credit card information right here and we’ll get that recurring payment set up. Oh it’s worth $1000 per year to you? Great, we’ve got a promotion going on right now where you get a free mechanical pencil* with our team’s logo on it if you donate more than $500.¹¹ Oh what’s that you say? You don’t receive any consumer surplus anymore because you’re now paying in cash exactly how much benefit you get out of a winning Muskies team? Well congrats, good sir, you just got first-degree price discriminated.

Economists love market transactions because they are mutually beneficial: the producer sells their good for a price more than what it costs them to produce (earning profits/producer surplus), and the consumer buys the good for a price less than what they value the good at (earning consumer surplus). Both the producer and the consumer are better off, so the world is just a little bit happier from the surplus that was created.¹² First-degree price discrimination, however, is when a firm charges each consumer a price that is exactly equal to the consumer’s willingness to pay (i.e. how much they value the good). But if a firm charges each consumer a price that is exactly equal to their willingness to pay, then the consumer is indifferent between buying and not buying the good (because they earn zero consumer surplus in either case), and the producer captures all the newly-created surplus as producer surplus. First-degree price discrimination is rare¹³, mainly because it’s extremely costly to find out each consumer’s willingness to pay, but college sports is one of the few instances where it’s currently practiced.

So why did schools change from charging monopoly prices to practicing first-degree price discrimination? Well there’s a whole other side of the market that we need to examine. Every firm that produces a good or service participates in at least two markets: the market where they sell the good or service that they produce, and the labor market. The schools need to “hire” (pay) “workers” (players) in order to produce [insert university] college sports, and this is where the labor market comes into play.

Why It’s Better to Have All the Bargaining Power

The labor market for college athletes has search frictions because teams need to figure out what needs they have and which players might fill those needs and players need to figure out which coaches they want to play for and how much money they might make, which all takes time and effort. This stuff isn’t posted on Monster.com — there are a ton of behind the scenes conversations as teams and players feel each other out. And there is bargaining because once a player and team show mutual interest, then they bargain over salary¹⁴ and playing time. So the labor market for college athletes is probably some version of a labor-market model with search frictions and bargaining power (such as the Diamond-Mortensen-Pissarides model).

We’ll focus on the bargaining power aspect because the search frictions aren’t particularly relevant here. When a firm offers a worker a job and the worker accepts, this is another example of a mutually beneficial transaction (we economists just love ‘em). The firm is better off because they pay the worker less than the additional revenue the worker will bring in, and the worker is better off because the firm pays the worker more than the worker values their time. Because they’re both better off, there’s some surplus that must be split, so the two sides bargain (i.e. negotiate) over how much of the surplus each party will receive.

One end of the spectrum is when the firm has all the bargaining power and pays the worker exactly equal to how much the worker values their time. The worker is indifferent between taking the job and not working because they’re equally well off in either scenario, and the firm gets all the surplus that was created. The other end of the spectrum is when the worker has all the bargaining power and charges a wage exactly equal to the revenue that the worker will bring in. The firm is indifferent between hiring the worker and not because they have the same profits in either scenario, and the worker gets all the surplus that was created.

This is where the transfer portal and lack of formal contracts become important. When players can just up and leave a team if they’re unhappy for the slightest reason — and in fact can just stop playing in the middle of the season (see Trey Green) and still earn a paycheck because they were not actually being paid to play basketball (remember, they’re paid for really really valuable IG posts) — well, players have essentially all the bargaining power. So we’re going to see players extracting as much out of teams as they possibly can. And if players are extracting as much out of teams as they possibly can, then the universities will need more money to be able to afford paying those players, particularly relative to the prior status quo where players received no money for playing¹⁵, so the universities start practicing first-degree price discrimination. The irony is that fans are paying more than before and yet the universities themselves are almost certainly worse off than before.

That’s because the final piece of the puzzle is that, before the House settlement, schools couldn’t pay the players directly, as this would have disqualified them from NCAA competition. So because schools couldn’t directly practice first-degree price discrimination by simply asking the fans for money to pay the players, they indirectly practiced first-degree price discrimination by encouraging their fans to donate to collectives who in turn pay the players (for the IG posts). Universities were sorta just weird middle men that organized the transfer of money from fans to players and also taught biology for some reason.

Will this all change now that revenue sharing is official and the universities are paying the players directly instead of players getting paid through the collectives? Not likely. As long as players can transfer on a whim an unlimited number of times with no penalty and players aren’t signing contracts that lay out the penalty for skipping games, then players are still going to have essentially all the bargaining power. The only thing that will change is that universities will switch from practicing indirect first-degree price discrimination, by asking fans to donate to collectives, to practicing direct first-degree price discrimination, by asking fans to donate to the university athletic department itself.

Why We’re All Losers

So who’s winning in all this? Well it’s definitely not the fans, who are unhappier than ever. And it’s not the coaches either, who are taking pay cuts to fund NIL. And it’s not really the universities either, who now have to manage a professional sports team and deal with all the surrounding chaos and uncertainty. So who is it? It’s the players. That’s what happens when you have all the bargaining power AND can extract all of the surplus from the consumer. But we need to be more specific. It’s the current players. The players who graduated before this all started don’t benefit (except those within the statute of limitations of the House settlement). And future players won’t benefit if fans get so fed up that they take their ball and go home.

And this is where I think the players are misguided. We don’t live in a static world but instead live in a dynamic world with repeated games. My decisions today are not fixed as my decisions tomorrow. So sure, I still continue to watch Xavier basketball with all the changes now, but I can tell you I am pretty damn fed up with all the nonsense in college sports and there’s no guarantee that I’ll continue watching in the future if things get any worse. And if a bunch of other fans feel similarly, then the amount of money that people are willing to pay to players may shrivel up. Hell if things get bad enough, and we all wake up to the fact that we’re just watching minor-league sports with university branding on top, college sports might cease to exist altogether (or even worse, converge to the status of the NBA G League).

No one appears to be thinking about the longevity of the sport, as they are instead interested in extracting as much value as possible today with little care to how much value exists tomorrow (see also the suggestion that the SEC and Big 10 get automatic qualifiers to the College Football Playoff and the suggestion that March Madness expand the number of teams). Sure, that’s an available strategy that one can choose, but usually things just die if you don’t try to balance value extraction today and value extraction in the future (such as in natural resource management). So I see this as an enormously short-sighted move by current players, but hey, incentives are incentives.¹⁶

And this doesn’t even account for the fact that willingness to pay has almost certainly gone down since all this nonsense started. I’m probably an outlier, because my willingness to pay directly for a championship is effectively zero¹⁷ — I think that some things are better earned than purchased (such as a college degree). Paying directly for a championship would devalue the championship for me, because it would violate the spirit of the competition. If you had a beer league softball team and paid the local AAA team (go Storm Chasers!) to fill out your roster, would you really feel that proud when the semi-pros are launching dingers and you win the championship 23-2? I don’t know about you, but that’s not something I’d brag about to my friends.

But many fans are willing to pay for a championship. If they weren’t, then the collectives wouldn’t have any money and we wouldn’t be using the word “booster” outside of asking for a chair for my son when we hit up the local Applebees for LNATB¹⁸. That being said, who enjoys college sports in 2025 just as much as they did back in 2019? Many fans are fed up with the endless transfers, holdouts, and conference realignments, so they’re probably willing to pay a lot less now than they were before. I know I have a hard time caring about college basketball as much these days. But without a leader to collectively bargain on everyone’s behalf, individuals are going to keep doing what makes the most sense for them in the short run at the expense of what makes the most sense for college sports in the long run.

I Suggest We Implement Some Simple Solutions and/or Burn It All Down

Believe me, I love markets. But there are some things that should operate outside of markets because of the adverse incentives involved in a pay-to-play system, and I think college sports is one of them.¹⁹ Unfortunately, the cat is probably out of the bag with regards to paying players, but I would love to see 1) minimum two-year contracts (so that schools have an incentive to develop players and players don’t have all of the leverage in negotiations), 2) players sit out a year if they transfer, with the exception of transferring after your freshman year or if your coach leaves (so that players are disincentivized from acting like mercenaries while allowing for the possibility that a player gets into a different situation than they thought they were getting into), and 3) salary caps (so that there’s at least a semblance of fair competition), which we got with the House settlement.

But if we can’t get some basic rules and structure in place, I say let it burn. It’d break my heart to lose college sports like that because they have meant so much to me throughout my life, but college players losing the opportunity to earn enormous sums of money because they got a little too greedy and forgot that the entirety of college sports exists because of the fans’ support, well, that’s just a comeuppance that’s a little too satisfying to not enjoy. Although that’s not economics - it’s just schadenfreude.

1. Although this has always struck me as a little weird because by placing “student” first as the adjective, you make “athlete” a noun and therefore emphasize that the student is a type of athlete, not that the athlete is a type of student.

2. AKA J.P. Macura.

3. Although again, up until July 2025, not to play sports, so they could just opt out whenever they wanted if they felt like renegotiating — see college bowl season and Nico Iamaleava, who did-a-leave-a.

4. Consumers will effectively try to maximize their consumer surplus, which is the difference in a consumer’s willingness to pay for a good and the price of a good, by buying goods and services that give them the most bang for their buck (although unfortunately “bang for your buck” is not a technical economic term).

5. This also applies to other collegiate sports, such as college football and college equestrian.

6. Other key features include being the only producer in town and producing below the optimal level of output — we all fiend for more college sports in the offseason.

7. Technically the marginal cost of producing a good. Marginal cost is the cost of producing one additional unit of a good. It is the first derivative of the cost function with respect to output.

8. We can see this by taking the derivative of the revenue function with respect to price. If revenue is equal to price times quantity and quantity is a function of price, then we have

\(\begin{align} \text{Revenue}(Price) &= Price \times Quantity(Price) \\ \Rightarrow \frac{\partial \text{Revenue}}{\partial Price} &= \underbrace{[1 \times Quantity(Price)]}_{\text{Higher price on existing tickets}} + \underbrace{[Price \times \frac{\partial Quantity}{\partial Price}]}_{\text{Value of lost ticket sales}} \end{align}\)

where

\(\frac{\partial Quantity}{\partial Price} < 0\)

because quantity sold will decrease when price increases due to downward sloping demand.

So for every dollar that the monopolist increases their price (remember that the derivative tells us the rate of change in revenue for a one unit increase in price), their revenue increases by $1 for every ticket that would have sold at the prior price but decreases by the value of the tickets that will no longer be sold due to the price increase.

Everything is true in reverse for a $1 decrease in price: the firm’s revenue decreases by $1 for every ticket that would have sold at the prior price but increases by the value of the new tickets sold due to the price decrease. The former is why monopoly firms charge higher prices than equivalent perfectly competitive firms and the latter is why monopoly firms don’t charge infinitely high prices even though there’s no competition to stop them.

Things get a little trickier if we want to consider costs, and therefore profits, but for the most part the marginal cost of selling an additional ticket is zero because most of the costs of hosting a sporting event are fixed costs that the school has to pay regardless of how many fans attend. If the only costs a firm faces are fixed costs, then the revenue-maximizing price is also the profit-maximizing price so long as profits aren’t negative (in which case the school should have cancelled the game to maximize profits at $0).

9. When a firm can produce more of a good at a given cost this is an increase in supply, which typically lowers the price of the good because it is now effectively cheaper to produce and less scarce (so long as consumers buy more of a good when the price decreases — if demand is infinite at a given price [perfectly elastic demand] then the price won’t decrease because the good is no less scarce).

But if each producer is so small that changes in output effectively have no impact on the scarcity of the good, then producers can increase production without worrying about having to accept a lower price for the additional production. In effect, perfectly competitive firms face a perfectly elastic demand curve at the market price — the firm can sell as much as they want as long as they don’t charge a price higher than the market price. Or in the words of a wise Midwesterner*, if a Nebraska farmer decides to grow 100 extra bushels of corn, it’s unlikely to affect the global price for corn.

*That wise Midwesterner is me — I just made that quote up.

10. Note that as an economist, I was proudly not a member of the union. The sociologists used to come recruiting for members down in the econ student dungeon offices and would receive looks of scorn from the entire department. We economists expected to be paid like shit because, well, we were lowly grad students and we also knew we were investing in our future. It’s not like grading exams produces hundreds of thousands of dollars worth of value.

Also note that I am not joking that University of California teaching assistants are represented by the United Auto Workers union. I have no clue how this came to be. I’m sure all those sociology PhD students had a ton in common with the blue-collar workers on the assembly line in Detroit.

11. *Does not include lead or eraser.

12. The creation of markets for mutually beneficial transactions is why world GDP over time looks like this.

13. Second-degree price discrimination, in which the producer charges different prices based on the quantity sold, and third-degree price discrimination, in which the producer charges different prices to different segments of the population, are much more common than first-degree price discrimination. An example of second-degree price discrimination is charging $10 for 10 buffalo wings and $13 for 15 buffalo wings, and an example of third-degree price discrimination is a senior discount at the movie theater.

With second-degree price discrimination, the producer assumes that a consumer’s willingness to pay for a good changes as they consume more of the good, and with third-degree price discrimination, the producer assumes that different groups of consumers have different willingnesses to pay. In both cases, the producer does not have to go through the costly and potentially impossible task of divining each consumer’s individual willingness to pay.

14. Remember that up until July 2025 this is the salary for “making a couple posts on IG about mental health awareness.”

15. Officially.

16. Economists call this a collective action problem that leads to a Nash equilibrium where everyone is worse off in the long run, because what is best for the individual is not necessarily best for the group. However, once the Nash equilibrium is reached, nobody has an incentive to change their decision because doing so would make them worse off, hence they remain stuck in the Nash equilibrium even though everyone is worse off collectively.

Collective action problems can be solved by, you guessed it, collective bargaining. This is why all the major sports leagues have a collective bargaining agreement that covers things such as free agency and how much a player is fined if they refuse to play in a game.

17. Note that my willingness to pay for a championship is not zero, just my willingness to pay directly for a championship is zero: I bought the monopoly-priced $120 script Musketeers sweatshirt when I went back to Cincinnati during my first year as a professor (read: first real job), and you can bet I wore that bad boy to class the following Monday.

18. Late Night at the ‘Bees. This was a real thing in the 2010’s. They also specifically say “see what happens when the high chairs get put away,” so they probably wouldn’t provide a booster seat for my son.

19. I am a proponent of true NIL, i.e. let players profit off their name, image, and likeness by doing advertisements, hosting camps, selling jerseys, and anything else that capitalizes on their popularity. But I’d truly be ok with lowering the quality of competition until we’re only left with players who are willing to play for the scholarship.