8/6/2019 1996 Mar Playing Off the States Delivers a Grand Prix

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Playing off the States delivers a grand

prix

This weekend the Melbourne Grand Prix is finally upon us. Amid all the

hoopla and fanfare it is perhaps easy to forget that this year Adelaide iswithout it. All the tourists that flocked there over the last decade have gone

East. Much of the infrastructure built to accommodate them will lie idle.

But this is only the tip of the iceberg. The true costs of the Melbourne Grand

Prix run much deeper. While competition for such an event brings winners

and losers and while it is clear that Adelaide is a loser, can we say that

Melbourne is really the winner? When Adelaide was the only player, itcould negotiate individually with the Bernie Ecclestone's Formula One

Construction Authority. The lack of any rival put it in a good bargainingposition.

In the economics of competitive bidding, however, one plus one equal a bigtwo. For the entry of another bidder, no matter how secretive that bidder is,

throws all the power in negotiations over to the other side. By just

threatening to play off the two rivals for the Grand Prix, its promoters could

ensure that the monetary compensation for the event was as high as possible.How high? As high as Adelaide would have been willing to pay for it. For in

an auction, to win you have to bid as high as the party who is second best.

Interstate rivalry for major events raises the price paid for those events.

Nonetheless, on the face of it, the event still goes to the city or state thatvalues it the most. But does it get the event it really wants? The interests of

the people of Melbourne and the Grand Prix promoters are not likely to beidentical on this matter. While the promoters will be concerned with

television royalties and ticket sales, residents will be concerned about

tourism potential and environmental harm. Already, there has beensubstantial evidence of such conflicts over the location of the Grand Prix.Similar concerns have arisen regarding over major projects (e.g., the Fox

Studios themselves a subject of interstate rivalry).

Just as competition between the states means that the promoter gets the

highest possible compensation for the event, it also means it gets the type ofevent it wants. The bidding war ensures that the most competitive city wins.

And this city is the one whose politicians are most willing to bear the costs

of being competitive. In the Grand Prix case, this means the city most

willing to accept environmental harm and other issues (e.g., timing and

8/6/2019 1996 Mar Playing Off the States Delivers a Grand Prix

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