We noticed that professional golfers today have ads on their hats, sleeves, collars, belt-buckles, shoes, etc. while in the past few had more than one or two ads.  At an individual level this makes sense but collectively it shows that the PGA would do better to centralize their negotiations with advertisers.

When Phil Mickleson considers selling another ad he has to lower his price.  He trades off the additional sale versus the reduction in the price to decide whether it is worth it.  He doesn’t take into account how his increased supply lowers the price of ads for all PGA golfers.  When this negative externality is not internalized, the PGA as a whole sells too many ads.  PGA-wide ad revenue would increase if they could negotiate ads as a group rather than individually.

Why don’t they?  In the short-term it would be simple.  Each golfer reports the ad revenue he is currently earning.  Then an agent for the PGA negotiates with advertisers to sell a block of ads and distributes them optimally across golfers.  This optimization would not only involve keeping quantity low but it would also take into account complementarity between golfer and ad, screen time, diversification, etc.  Then, the total ad revenue would be shared among the players in some way that gives each player at least as much as he was earning individually.  Since total revenue would be higher, there would be money left over to divide up in some way.

The problem is how to manage this over time.  In order to keep a majority of players willing to go along with it, they will have to be promised at least as much as their autarky value.  But the most recent public information about that value was recorded just before they entered the cooperative agreement.  Over time that information depreciates as players rise and fall and new players arrive.

But privately, each individual player would be able to estimate their ad revenues should he go it alone.  When the players bargain over shares, each individual player will exaggerate his earnings potential and insist on compensation for his outside option.  When public information is weak enough, these demands can add up to more than the group can earn, at which point bargaining breaks down and autarky prevails.