South-Western EconNews: Sports Card Producers' Defensive Moves Neutralize Effects of Basketball Lockout

Sports Card Producers' Defensive Moves Neutralize Effects of Basketball Lockout

Subject

Comparative Statics

Topic

Equilibrium

Key Words

Lockout, Profit, Prices, Sales, Strike, Revenues

News Story

The basketball lockout that threatens the 1998-99 season has not damaged the sports trading card industry. One reason is that manufacturers delayed or canceled shipments in anticipation of the dispute.

This more cautious attitude resulted from the lessons of previous years. In the late 1980s and early 1990s, speculators would buy a numerous packs in search of a limited edition card that they would resell for a profit. Also, new styles and designs boosted demand. Prices rose to very high levels. New card sales reached $1.1 billion in 1991. Manufacturers then overproduced causing card values to drop and sales to fall. Some producers went out of business. Then in 1994, the baseball strike caused a steep decline in the business because producers were awash in cards.

In addition, the effects of the basketball lockout have been offset by heightened interest in baseball cards stimulated by the Mark McGwire-Sammy Sosa home-run race. Industry revenues were able to remain roughly constant at $400-450 million.

(Updated February 1, 1999)

Questions

1.	In the early 1990s, the sports card industry saw boom and bust.
	a) Draw a supply and demand diagram of the sports card market. Mark the equilibrium price and quantity of cards bought and sold.
	b) Show the effect of speculation and new designs on the equilibrium price and quantity.
	c) Manufacturers then increased the supply of cards, which also lowered the resale value. Illustrate the effects of these two changes on the equilibrium price and quantity. Why do you think that some producers went out of business?
2.	In 1994, the baseball strike caused further difficulties.
	a) Draw another supply and demand diagram of the market for sports cards.
	b) Bearing in mind the news story, show what happened to the equilibrium price and quantity of sports cards as a result of the strike.
3.	In 1998, the story was different. The supply of cards was constrained.
	a) Draw a further diagram of the market for sports cards and mark the initial equilibrium.
	b) Show the effect of consumers wanting fewer basketball cards. How did cutting back on basketball card shipments help the manufacturers? Illustrate.
	c) How might the greater interest in baseball cards have helped to maintain revenues? Illustrate on your diagram.

Source

David A. Markiewicz, "NBA strike isn't deflating the trading card business", Cincinnati Enquirer, November 29, 1998.