How do firms compete?

Competition is not a very straightforward concept to define. One can think about markets being competitive if market players actively work to attract consumers via low prices, and periodically launch price wars. However, price, or rather airfare in our case, is just the beginning of the story. Firstly, as already noted, the full price of travel includes not only the monetary expenses, but also expected schedule delay. So, an airline offering five flights per day may end up offering an average passenger a “cheaper” product as compared to a carrier who only flies once per day, even if the latter airline's airfare is lower. A business traveller taking a late afternoon flight with the former airline instead of waiting until the following day to return home with the carrier offering less frequent service may be more than happy to pay higher airfare for a more convenient schedule.

Economists think about any product or service on a market as possessing three key characteristics relevant to analysis of competition: price, location and quality. The latter two terms are broader than just physical location or things we usually associate with quality (such as how luxurious, safe or durable a product is). While location can indeed represent a physical place (e.g., a supermarket's address), it can also signify other product characteristics (such as cocoa content in chocolate or colour of a car). Product quality can indeed include durability, safety, refund conditions, customer service, or even such intangible things as brand reputation.

There is however one major difference between the notions of “location” and “quality”: when prices are the same, different customers will disagree on their ranking of products or services with different “locations”, but not with different “quality”. Other things being equal, I prefer buying my groceries in a supermarket that is most easily accessible from the place where I live (which might not necessarily be the closest in terms of distance from my home). And since people live in different locations, they will inevitably disagree on which supermarket is the most convenient for them. I prefer dark chocolate, while my children will only eat milk chocolate.

Positive effects: what are they and can we measure them?

In this chapter, I will examine the benefits of aviation for regional development. For an economist, addressing this issue involves answering the following three questions. First, what is the nature of the benefits? Second, how can we measure them? And third, should the government intervene to enable those benefits where the market is unable to do so? The first question is a rather multi-faceted one: certainly, removing aviation activities from the economy would be like removing a vital organ from the body – the world would have to change fundamentally to adjust. If one takes this view, then thinking about the economic benefits of aviation activities becomes a rather pointless exercise, similar to trying to measure benefits of lungs or liver to an organism. Since the start of the pandemic, we have seen how devastating cessation of international air travel can be, especially, for those countries that rely heavily on inbound tourism to drive their economy.

When economists think about the nature of economic benefits, they usually talk about the incremental effects of aviation activity on the economy. Bringing a point-to-point low-cost carrier to an island airport will generate more tourist traffic, giving a boost to the island's economy. Adding a network carrier's service from a regional airport to a major hub will make it easier for local businesses to connect to the world, generating more business activity, and increasing both imports into and exports out of the region. Improved connectivity from a local airport will increase attractiveness and competitiveness of the region as a place to do business. These are just some ways aviation activities can benefit regional economy.

Whatever the mechanisms behind the positive economic effects of aviation, measuring them is a non-trivial data analysis exercise. We all know that correlation does not imply causation, but when trying to measure the impact of aviation on the economy from the data available, even understanding the direction of causality is not easy. Do businesses come to an area because it is well-connected to the world through a local airport, or does aviation activity grow because of the growth in the regional economy?

The excitement of attending a first football match is ingrained in the memory of many fans. They can recall the details of the journey to the ground, who they were with, the merchandise and food being sold outside and the feeling they had on entering the ground for the first time. They can remember the match itself, the emotional involvement of the other spectators around them, the singing and the chanting. I recall catching the number 53 bus from Plumstead Common at the age of six with my parents, walking with the crowds through Maryon Park and standing on the huge East Terrace at The Valley, the home of Charlton Athletic.

For many fans, that first experience begins a lifelong commitment that becomes an important part of their identity. Going to a match is not simply a release from the pressures of everyday life, important though that is, it also represents an opportunity to connect with an extended football family. This may include generations of the same family and old school friends. However, it may also involve “football friends” with whom the only contact is at the game, for a drink beforehand or afterwards. I frequently make the two-hour journey to attend Charlton home games to meet football friends in my birthplace of Greenwich for brunch and a pre-match pint.

Even if after moving away from the club's location, a fan's continuing support for their team can be a means of maintaining and reviving their connection with an area familiar to them. Topophilia, a love of place, and the cultural identity associated with a place, can be a powerful force. Of course, in some ways this is a nostalgic and sentimental interpretation, or at least a constructed version of the experience of football. Many fans never visit the ground of the team they support and simply follow their progress on television and social media. Football is now a global game with supporters of leading teams located all over the world. Inevitably this leads to a tension between a club as a global business, perhaps with foreign owners, and the idea of a club as an expression and embodiment of a particular community.

The most consequential foundational contribution of the Ostromian research program to the field of public administration is the effort to introduce the apparatus of modern “political economy” to the core of the field. The other important contributions to the theories of governance and public administration are, in one way or another, based on, or derived from, that. Following the evolution of public administration as a field, and its relationship with economics since its inception in Woodrow Wilson's effort to institutionalize the new discipline, one realizes that the Ostromian perspective was a turning point. The Ostroms pushed for a change of paradigm, as the main advocates in the field of public administration of the public choice revolution fuelled by scholars such as James Buchanan and Gordon Tullock in the 1960s.

Public administration and political economy developed as two distinctive domains and traditions. Yet, with the burst of the public choice movement in the academic arena in the 1960s, a convergence takes place. Elinor and Vincent Ostrom's contributions emerge as uniquely important in this respect because the two Bloomington scholars were the unquestionable architects of the intellectual junction point. Working in both traditions – public administration and public choice – they created an entire research program aiming at their integration (Aligica 2015; Aligica & Boettke 2009). The attempt to promote public choice as the theoretical foundations in public administration, and public administration as the applied domain of public choice is undoubtedly a major contribution of the Ostroms to both the foundational and the applied social sciences in the twentieth century.

By the beginning of the 1970s Vincent Ostrom recognized an acute “intellectual crisis of public administration”, which created the conditions for a potential new start and a novel approach. The Ostroms’ alternative was to use the new theory of public choice as the foundational theoretical framework for public administration:

In November 2020 the chairman of the EFL, Rick Parry, said that partnerships with betting companies were worth L40 million and an immediate ban would be “potentially catastrophic” (Off the Pitch 2020). His statement emphasizes just how reliant football clubs have become on their financial relationships with betting companies, a relationship that has attracted increasing criticism from advocacy groups and the media and attention from government.

An activity that at one time was seen as a source of innocent pleasure, betting is now recognized as potentially harmful and addictive. Like smoking, alcohol addiction and sugar, betting has become the focus of increased government regulation on its marketing, advertising and tax in recognition of the social harm it can cause (Grant 2018: 52–6). Industries that face such criticism often try to head off direct government intervention by trying to make a case for self-regulation and voluntary levies based on partnership with government. Responsibility for reducing harm, they argue, should rest with the individual addict rather than the industry or society more generally.

The betting industry's political vulnerability was apparent with the success of the campaign against fixed odds betting terminals (FOBTs). Campaigners against them described them as the “crack cocaine” of gambling, arguing that the quick-fire plays and the high stakes involved encourage customers to chase losses. The gambling industry argued that use of FOBTs could be a symptom rather than a cause of problem gambling. The government secured substantial tax revenues from the machines while the industry claimed restrictions on the machines would result in the closure of betting shops. Despite the efforts of the industry, the advocacy campaign was successful and the maximum stake was reduced to L2 (Grant 2018: 56–60).

There has been a long relationship between football and betting. At one time the football “pools” were a significant part of people's lives in the UK. “As late as 1998, 34% of all adults were players” (Forrest 1999: 161). Coupons would be carefully filled in seeking to predict draws, later score draws, in the hope of winning a life-changing prize.

On a summer's day in 2008 I was walking around Reykjavik when I heard football chanting. Following the sounds, I located the ground of KR Reykjavik and went in to watch the match. Without knowing a word of Icelandic I was able to understand immediately what was happening in the game and to respond to the local fans around me. Football is a universal language, shared everywhere, and participating in a game whether as a spectator or a player creates mutual understanding.

Football has become a global sport and is subject to the forces of globalization that have shaped the world economy over the last 40 years. The experience of globalization has sparked considerable debate and led to the creation of a variety of theoretical perspectives that seek to explain the phenomenon and understand its effects on the economy and society. Globalization itself is a contested concept, not least because it has been used normatively as well as analytically. Competing definitions of globalization abound and it is important to note that it has a number of dimensions: principally economic, cultural and political. In broad terms, it is a process that reduces the significance of national boundaries as an impediment to the free movement of capital, goods and services and (to a far lesser and more contested extent) of labour. It is a process in which international trade grows faster than national output; foreign direct investment grows faster than national trade; and there is a transformation in response of international financial markets. These trends have been facilitated by advances in communication and digital technology, which Goldblatt (2019: 26) argues “have been the key to the economic globalization of football, multiplying the game's audience many times over, and forging the basis of the phenomenal income it now generates”. However, it is more than a single economic dynamic, or even a set of them, but “a syndrome of changes of social relations that also produce deep tension” (Markovits & Rensman 2010: 27n).

How far football has been globalized is a more complex and nuanced question than it may first appear.

The impressive work of Vincent and Elinor Ostrom is commonly regarded as relevant for practitioners of policy analysis and also for more theoretically-minded scholars who are concerned with the functioning of institutional arrangements in small or larger communities. In recent years their accounts of phenomena like polycentricity and co-production came to enjoy a central place in discussions about the nature and the working of government and of contemporary democratic societies.

However, their views and reflections on more abstract, foundational issues – epistemological (what is the structure of scientific inquiry?), ontological (what does the stuff of our social world consist of?) and methodological (in what sense do individualistic assumptions matter?) – are less prominent among scholars who have studied their work. In our view, these issues – particularly questions related to ontology – are of crucial importance for a correct understanding of the Ostroms’ intellectual inheritance. Ontological issues pertain to the very core of all theoretical approaches to social reality and invoke deep philosophical presumptions, of which Vincent and Elinor Ostrom were well aware. Their good acquaintance with the political philosophy of Thomas Hobbes, David Hume and Adam Smith grounded some of the positions they adopted. Other sources of their views can be traced back to American pragmatism (Aligica 2014: ch. 6) and to the comprehensive theoretical conception of politics of Lasswell (Lasswell & Kaplan [1950] 2014). Some different, albeit extremely pertinent insights came from the philosophy of language (Barwise & Perry 1983; Searle 1969, 1995, 2002). Vincent Ostrom was particularly impressed by John Searle's work. He greatly admired Searle's account of the role of language in the constitution of social reality and used it in setting the foundation of his own perspective on it. Having recognized the foundational role of language in the way humans think, communicate, associate, and work with others, he developed his social theory of institutional order as a language-based knowledge process (Aligica & Boettke 2011). Elinor Ostrom (2006) followed Vincent in acknowledging the influence of Searle and elaborated a profound and specific analysis of the way language informs our thought as well as the social reality we live in.

To place this chapter in an analytical context, we need to consider two alternative versions of economics. Conventional or mainstream economics has developed a set of theories and terminologies based around such concepts as rational utility maximizing actors, supply and demand, and efficient markets. In the wake of the global financial crisis the adequacy of mainstream economics has been widely challenged. The central doctrines of economics “have encouraged the deregulation and de-institutionalization of markets, especially financial markets, thereby increasing volatility” (Skidelsky 2018: 384). An alternative perspective focuses on the reduction of inequality and the promotion of a more fulfilling life, which may not be captured by statistics such as growth in GDP.

Mainstream economics is not irrelevant or outdated, to discard it would be to lose valuable insights and ways of thinking about problems, but it is insufficient. Skidelsky admits that economics is “micro-efficient, but macro inefficient” (Skidelsky 2018: 387). A risk arises in aggregating micro decisions into a belief that a macro model can be built on “the optimizing decisions of well-informed, forward-looking rational agents, subject only to the logic of competitive markets” (Skidelsky 2018: 386). Behavioural economics, using the insights of psychology and experiments on cooperation, offers a corrective to oversimplified assumptions of rationality, but can lead to behaviour being labelled as irrational when it “may be perfectly reasonable in the circumstances” (Skidelsky 2018: 389).

Some classic concepts of economics have been shown to be applicable in this book. Football shows a tendency towards oligopoly as far as the big clubs are concerned. What has emerged “is a handful of really big winners with quasi-monopoly status at the top, and a very long tail with everyone else earning a fraction of their returns” (Lonergan & Blyth 2020: 99). There is cartel-like behaviour in an attempt to erect barriers to new entrants and to a significant extent competition law has been evaded. All this might suggest the familiar phenomenon of market failure and the need for a resort to the usual corrective remedies.

As the preceding chapters may have suggested, the regulation of football is not very effective. Football has largely regulated itself, reflecting the extent to which it is a closed policy community with its own norms, values and largely unchallenged assumptions. It sees itself as a special world that can isolate itself from wider societal trends with external interventions regarded as unwanted and inappropriate. “In a country obsessed with football” (Cameron 2019: 571), politicians are often willing to tolerate this distinctiveness if they can bask in the reflected glory of success by national and club teams and pretend that they are “one of the lads” by supporting a particular team. This can, of course, lead to mistakes. David Cameron insisted that he was an Aston Villa fan, but mistakenly identified himself as a West Ham supporter in the 2015 general election campaign (Cameron 2019: 571–2). This led to social media jokes about “West Ham Villa” and “Aston United”. Politicians also appreciate hospitality offered at big matches. This combination of internal self-satisfaction, cosy relationships and external benign neglect has meant that in general the governance of football is inadequate at a national and international level.

Government and legislative interventions have been largely ad hoc with calls for the game “to get its own house in order”. It rarely does and no systematic pressure is placed on it to do so. The EU did start to use its capacity and mission as a regulatory state at one stage, but this faded with personnel changes and the arrival of new and more pressing challenges. FIFA has been beset by problems of corruption, while UEFA has been unable to put in place an FFP system that can withstand legal challenges. At a national level, the FA has been seen as ineffective and conservative while the EFL seems unable to deal with “rogue owners”. The US commissioner and franchise system centralizes control in a way that means a lot depends on the probity and good judgement of the person in charge.

The joint work of Elinor and Vincent Ostrom sought to address the possibility for individuals to establish a set of institutional conditions that would allow them to self-govern, rather than to be governed. Fundamental to their analysis was the idea that institutions are not only an artifact of deliberate human choice, but also that institutions facilitate learning about the behavior of individuals within society. Human beings must craft institutions in order to create reliable expectations for peaceful and productive interaction. In so doing, they are able to learn about the behavior of individuals within a set of institutions. Yet, individuals do not passively respond to their own constraints: they also learn how to better utilize those constraints for their own betterment, using their own particular and tacit knowledge. As a result, learning gives rise to the possibility for a greater variety of human behavior, the possibility of which can generate social instability. The role of institutions, then, in an Ostromian framework, is to order such adaptive human potential in such a way as to create reliable expectations about how others will behave and adapt to changing circumstances of time and place. Reflection and choice occurs on the margin with regard to institutional change. Individuals are grounded and shaped by the institutional framework within which they interact, but are nonetheless artisans that both tinker and adapt to the institutions that are the artifacts of their creation.

The particular focus of this chapter will be to analyze institutional change from an Ostromian perspective by analyzing the relationship between selfgovernance, polycentricity, and federalism. Throughout the work of Elinor Ostrom and Vincent Ostrom, there exist two consistent themes regarding the importance of federalism for polycentric governance. First, the Ostroms emphasized that the institutional conditions of federalism are a human artifact, based upon choice and deliberation. However, given their emphasis on processes of learning among human beings, this second theme suggests, as I argue in this chapter, a bi-directionality in institutional analysis. Although federalism and polycentric governance may be based on deliberate choice, such an institutional framework facilitates learning and the adaptive potential of human beings, leading to unintended innovative institutional changes to reinforce social cooperation between individuals.

According to FIFA there are some “five billion football fans around the world, with Latin America, the Middle East and Africa representing the largest fan bases”. Over three billion people watched some of the 2018 World Cup with more than a billion tuning in for the final (Goldblatt 2019: 551). However, the money in the game is concentrated in Europe. No club from outside Europe ranks in the top 30 for revenue generation. In the 2018–19 season the top 20 clubs in the world were all European, raking in a combined revenue of €9.3 billion (FIFA 2020).

Football's consumer appeal is huge, with its younger consumers being the most important commercially. It is ostensibly an industry, and some clubs attempt to operate in a business-like fashion, but with one important exception: it is a business unlike any other. The overwhelming majority of football clubs do not make any profit. As a result, many conventional forms of economic analysis do not apply. When interrogating the data, however, it should always be remembered that this is “a unique industry because the investments made are frequently emotional or political instead of just financial” (Maguire 2020: 169).

The absence of profits

In a capitalist or free market economy businesses are normally run with the expectation of making a profit. Stock markets pass judgement on companies and increasingly feature predatory hedge and private equity funds. Companies that are seen to make insufficient profits are highly vulnerable to buy-outs and takeovers.

Often an investor or company specializing in acquisitions takes over the company for a nominal amount in the hope of securing a turnaround by disposing of underperforming assets, as in the case of Mike Ashley and the UK department store House of Fraser. Hedge and private equity funds may perform a similar role. Whether this is good for the company, its employees or the wider economy is beyond the scope of this book. It is, however, worth noting that an economy without mechanisms for dealing with failing companies would soon start to underperform at a macro level.

Vincent Ostrom's The Meaning of Democracy and the Vulnerability of Democracies (1997) is in many ways his scholarly manifesto, and as such provides a window into his world view and the scholarly task he set for himself throughout his career. Critical to his effort was a quest to understand the human condition, and in particular the conditions that would make possible a self-governing democratic society. Democracy for Ostrom was not primarily about the mechanisms of political selection, that would no doubt be part of the machinery that would be analyzed, but about ways of relating to one another as free, equal, and dignified individuals. Citizens in a democratic society would need to shoulder the burden of the “cares of thinking” and the “troubles of living”, as Tocqueville put it, in order to be capable of self-governance. But institutions of governance must also be structured in such a manner that they exhibit neither dominance, nor acts discriminatory. “Democratic ways of life,” Ostrom tells us at the very beginning of his book, “turn on self-organizing and self-governing capabilities rather than presuming that something called ‘the Government’ governs” (1997: 3–4). Democratic societies are at risk, Ostrom states clearly, when relationships are grounded on the “principles of command and control rather than on principles of self-responsibility in self-governing communities of relationships” (ibid.: 4).

It is often forgotten in the aftermath of Elinor Ostrom's Nobel Prize, how their respective projects shared this fundamental commitment to the exploration of self-governing democratic society. They embarked from the mid-1960s onward on their “long polycentric journey” as she put it on more than one occasion. This included not just the more philosophical explorations of Vincent's meaning of democracy, and the relationship between political theory and policy analysis, but the nuts and bolts of institutional arrangements that made self-governance possible even in the face of difficult initial conditions. This was most famously seen in the acts of public entrepreneurship associated with managing common-pool resources, but it was also evident in the local provision of public goods such as roads, police, schools, etc.