Uefa has risked the Champions League’s popularity with an increase in supply | Ignacio Palacios-Huerta

It's 1991 at the University of Chicago, and Gary Becker, who would soon win the Nobel Prize in economics, is making an observation in a well-known research paper. He points out a seafood restaurant in Palo Alto, California, that doesn’t accept reservations and always has long lines during peak dining times. Right across the street sits another seafood restaurant that offers similar quality food, slightly higher prices, and comparable service and features. However, this second restaurant frequently has a lot of empty tables.

The big question is: Why is it that the well-loved restaurant isn’t increasing its prices to lessen the wait time for tables? And why isn’t it expanding to accommodate more customers and take advantage of its fame? The likely answer is that making those changes wouldn’t be the best choice. In fact, it could harm the business significantly.

Everywhere you look, there are various products and scenarios like this restaurant. Hit theater shows in London, exciting sports matches, packed nightclubs, exclusive sneakers, art displays, and similar ventures are all examples where supply doesn't quite catch up to demand. Many still choose to focus on creating more demand than supply. But why is that? Why isn't it considered ideal to host a few extra sporting events when they prove to be popular?

Becker points out that these items can be considered "social goods." This means that when more people want a particular item, the demand for it grows even more. People tend to gravitate towards products and services that others have a liking for, and the more popular something becomes, the more interest it generates among potential consumers.

An interesting phenomenon occurs in the fundamental supply-and-demand model used by economists. Normally, we expect that when prices rise, demand falls. However, in situations influenced by social factors, demand can actually increase within a certain price range. Essentially, we may find ourselves wanting more of a product as its price goes up. The reason behind this is straightforward: when we buy these items, we're not just getting the product itself; we're also tapping into its social appeal. As prices rise and demand exceeds supply, the product’s popularity grows. This leads to a well-known phenomenon called the "multiplier effect," where the demand for trendy products and experiences creates a self-reinforcing cycle.

This helps clarify not just the mystery surrounding pricing and why there's a hesitation to increase the supply for popular events, but also the unpredictability of consumer demand. It shows that it's often much simpler to drop in popularity than to regain it. Building a good reputation takes time, but because popularity tends to attract more popularity, making even small changes can quickly lead to a decline in demand.

This is important because the Champions League is a prime example of a successful social product—indeed, one of the most successful. It's hard to imagine a more popular competition in the world of football, which is the most beloved sport globally. This tournament serves as a clear social benefit. When I buy a ticket to a match, you can get one too, and our shared experience makes the game even more enjoyable. If I watch the match and you do as well, we can discuss it at work the next day or even later. We might even head to a bar together to catch the game. Family interactions also play a significant role in enjoying the sport together. The Champions League is especially notable for its strong social connections, reaching a broader audience than many other leagues.

The revamped Champions League format signifies that Uefa has opted to raise the number of matches from 125 to 189. The reasons for this increase aren't particularly relevant. It could stem from pressure due to the failed Super League initiative, demands from certain club owners in Europe, or Uefa's desire to make the most of its current success. Regardless, we are witnessing a startling 51% rise in the number of games.

This indicates that the high demand for "top games" has lessened. If popularity is linked to this extra demand, then the new format is making a significant gamble by shifting from trendy to outdated. This isn't a subjective view or a result of complex calculations. It's a straightforward reality that has nothing to do with why affluent players and coaches might prefer to maintain the existing high demand (such as playing fewer games, especially when salaries remain unchanged).

The social aspect of enjoying Champions League matches highlights how crucial social influences can be in determining economic results. Many instances illustrate that the relationship between individual choices and broader market trends means that a drop in the demand for a trendy item can lead to a swift decline in its popularity. This, in turn, can cause a significant overall decrease in demand for that item. This scenario is not only possible but perhaps even probable. To gauge the potential risks of changes in the Champions League format and the likelihood of negative repercussions, a detailed analysis of the demand trends prior to the change would be essential.

It’s important to highlight that having more demand than supply is often seen as a positive because it indicates that popular games are in high demand and leave a lasting impression. While this approach may not yield immediate profits, it contributes to long-term success by enhancing brand recognition and creating ongoing demand. Even though the same successful events or products can be replicated—like a match in London or a pair of sneakers or an art show—it's evident that a match between Manchester City and Inter in September is not the same experience as one in April. Premier events are hard to duplicate.

Ignacio Palacios-Huerta teaches at the London School of Economics, is a member of the Ikerbasque foundation, and formerly led talent identification at Athletic Bilbao.

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