First, let me apologize for my lazy and rather hasty response to your original article. I responded to your erroneous claim that both the demand and supply curves shift:

“Now shift the demand line to the left as the net number of jobs is decreased by 50-100 (given that 735 players were on NHL payrolls to start this season, that is a significant number of jobs). Assume the supply line remains in the same place (although the supply of potential NHL skaters increases slightly every year), and the new intersection of the two lines is lower on the price axis. In simple terms, more people are competing for fewer jobs and so employers don't have to shell out as much cash to get good workers.”

But in so doing, I committed some of the same mistakes you did. But, first, let’s clear some technical details out of the way.

Demand and supply analysis is a lot more subtle then most realize. Most of the misunderstanding arises due to a lack of comprehension of what underlies the construction of the curves.

In the case of demand curves, the assumption is that there is an underlying taste or ordering of preferences that generates the steepness of the curve. The demand curve therefore “shifts” only in response to changes in these underlying tastes or preferences. Contracting the number of teams therefore does not move the demand curve per se , it simply imposes an artificial constraint on the equilibrium number of players. A good proxy for demand might be, say, the desire to win a Stanley Cup. So unless you are proposing that contracting teams somehow diminishes the owner’s desire for a championship, and therefore their demand for players of any caliber, the demand curve plays a passive role in the analysis.

Similarly for the supply curve. Supply curves embody technology, capital, labour etc. All the supply schedule says is that at a particular cost (price), existing technology allows us to produce this many widgets. Again, unless you are arguing that the contracting teams somehow impacts on the underlying production function that generates the supply curve, the supply curve also plays a passive role in the analysis.

The point is that the NHL, in exercising its monopoly power, imposes an artificial restraint on the market that drives up wages rendering the normal supply demand analysis moot. Contracting teams would therefore only serve to exacerbate the escalation in salaries. (to see this just draw a supply/demand diagram, and then draw two vertical lines (to the left of the intersection) extending from the horizontal axis upwards. The first of these lines then represents the current situation, while the one to the left would be the situation if some teams were contracted. The corresponding wage rates are found at the point of intersection of these lines with the demand curve).

The primary point is that the market is not allowed to function in any of the professional sports. I realize that competitive balance is an issue. Having said that, however, the population growth over the last few decades as far outstripped the increase in the number of professional athletes in each of the major leagues. In other words if, say, 2% of the population were professional athletes 30 years ago, then that percentage is considerably less today. So, if you believe, as many are wont to do, that there was some golden area of professional hockey some 30 odd years ago, then it follows that we could expand the NHL – thereby lowering wages – without watering down the product.

In simple terms, what we have now is too much money chasing too few players, a situation that inevitably leads to inflation. Your remedy calls for even more money chasing even fewer players.

Thanks again for the article and for forcing me to think and for pointing out my error.

Cheers;
Darren