Reference no: EM133129330

The National Collegiate Athletic Association (NCAA) restricts the amount that colleges and universities may pay their student-athletes. Suppose that there are just two colleges in the NCAA: Ivy and State. Each must choose between paying athletes according to NCAA rules and paying more. If both Ivy and State follow the NCAA salaries, then each would earn $3 million. If one follows the NCAA salaries and the other pays more than NCAA salaries, then the college paying more can attract better players and would earn $5 million, while the college following NCAA would earn just $1 million. If both colleges pay more than NCAA salaries, they would increase their costs but not get better players, so both would earn $2 million.

Address these areas in your discussion: 

1. Construct a game in strategic form to analyze the choices of Ivy and State, and identify the equilibrium/equilibria.
2. With government backing, the NCAA can punish colleges that pay more than the NCAA permitted salaries. How would this affect the equilibrium/equilibria?
3. Which of the following concepts best describes the NCAA rules on player salaries: monopoly, monopsony, economies of scale, or economies of scope. Explain your answer.