The New Economics of Chess By Tyler Cowen

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    I just finished watching one of Chess24.com’s Magnus Carlsen-affiliated rapid on-line chess tournaments, when today (a day later?) I see that another tournament has started.  And with Magnus himself playing, as well as other world-class players.  Note that Magnus both plays in these tournaments as the #1 attraction, and he owns an equity share in them, albeit with other investors.

    So I’ve been trying to model the production of chess services in my mind.

    I start with the point that viewers care much more about live, fresh games than games from a week ago.  Many sports, of course, operate on this same basis.

    The second point is that most chess players have a relatively low opportunity cost of time, Rogoff and Kasparov excepted, plus some chess players can substitute into poker for profit (and may have quit chess already).  In fact what they do in their spare time is to…play chess!  Often with each other, and often on-line.  So if you offer to pay them some amount for doing basically the same, they will sign up.  Especially during a pandemic when many of them are trapped under relatively severe quarantines.

    It is also the case that a chess player can play many days in the year, perhaps not every day, but you really can play a lot without tearing your rotator cuff.

    It then seems the equilibrium is a much higher supply of chess tournaments, especially since on-line play removes some of the previous barriers to entry, such as needing a venue and some physical infrastructure.

    You might even end up with a kind of Malthusian equilibrium, where the supply keeps on expanding to meet a fairly low marginal cost.

    But this is a “superstars” kind of competition, and so the returns will go to the scarce factor.  That scarce factor is Carlsen himself, who garners far more attention than any other player.  And as noted he is an equity holder in this venture and as a player, he has been winning the #1 prize money.  Over time, you might expect the returns of some of the other players — may be in the top ten but not so famous or glamorous — to approach the Malthusian level.  Perhaps much of the public doesn’t care if Magnus plays #9 or #16, who in any case are only a small number of rating points apart.

    Notice how well Magnus Carlsen understands reputation and internet production.  He keeps on posting “Banter Blitz” videos on YouTube, which show him playing speed chess on-line and commenting on the games as they proceed.  He dramatically expanded the supply of chess tournaments, which he earns income from.  He already was “the scarce factor,” and he has dramatically expanded the supply of attention aimed his way.  He understands that successful internet production is frequent production.

    Online chess viewing is way up according to Nytimes.com(NYT) with the pandemic, and also because of these efforts.

    Do not underestimate Magnus Carlsen.  He has been #1 in classical chess, rapid, and blitz, all at the same time.  He is a huge YouTube star in chess.  He has won a tournament about chess trivia, and he has been #1 in fantasy football for the whole world (not an easy feat).

    And now he is bringing an economic revolution to chess, with himself as the #1 labor and equity earner at the same time.

    Source: marginalrevolution.com

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