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Rule changes and competitive balance in Formula One motor racing

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Abstract:

This article provides an economic explanation of the frequent rule changes in the Formula One (F1) motor racing series. In a two-stage model, the FIA (the organizer of the F1) first decides whether to change the rules or not, and then the racing teams compete in a contest. It turns out that a rule change reduces the teams' performances, but also improves competitive balance between the teams. The rule change is implemented, if the FIA's revenue gain from the latter effect overcompensates the FIA's revenue loss from the former effect. We provide empirical evidence from F1 seasons in the period 1950 to 2005, which supports the main implications of the model.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701349182

Affiliations: 1: Department of Economics and Quantitative Methods, University of Lecce, Italy 2: Department of Economics, University of Munich, Germany

Publication date: October 1, 2009

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