Question

2. Throughout the 1980s and 1990s, Ted Turner owned the Atlanta Braves, as well as the television station TBS. Other networks offered to pay large fees to broadcast Braves games, but Turner chose to broadcast them on TBS. Using what you know about vertical integration, what did this decision likely mean to the Braves' profit, as well as to Turner's overall profit?

Answer 1

Vertical Integration

It is an arrangement in which the supply chain of the company is owned by that company . Example- Taking an example of amazon where amazon sells its own product (eg.amazon basics,rivet furniture,Happy Belly Food etc.) which amazon produces themselves .

The decision resulted in Braves Profit, as well as Turner's overall profit because-

>>One of the main reason for vertical integration is successive monopoly which means to a market structure where the sports franchise has the monopoly power over its distribution(broadcasting) rights and the distributor(broadcaster) has the monopoly power over the sales of advertisement slots while broadcast.

>>Vertical Integration would also result to reducing cost of contracting because the transaction which would happen regularly will not be subject to contracting process and by this , cost of executing, cost of negotiating and cost of enforcing contract will be avoided. It is efficient because it will lower the overall cost which would eventually result to increase in profits.

>>In a Vertical Integrated company , they can report revenues which can be upstream or downstream as it wishes. which means if a broadcasting company owns a club , so by that the broadcasting company can transfer the broadcasting rights for free, at a price of zero . So by this neither the club nor the players will have any profits from the sale of broadcasting rights. in leagues where there is intensive revenue sharing ,then virtual integration will amount to substantial change .