Losing the in crowd Champions League expansion risks being too much of a good thing

The year is 1991. The place, the University of Chicago. The person, Gary Becker, who just over a year later would become a Nobel laureate in economics. In a famous academic paper, he notes: "A popular seafood restaurant in Palo Alto, California, does not take reservations, and every day it has long queues for tables during prime hours. Almost directly across the street is another seafood restaurant with comparable food, slightly higher prices, and similar service and other amenities. Yet this restaurant has many empty seats most of the time."

- Ignacio Palacios-Huerta

The question is why. Why doesn't the popular restaurant raise prices, which would reduce the queue for seats? Why doesn't it increase supply (expand capacity) to reduce the excess demand and capitalize on its popularity? The answer is that doing that would probably not be optimal. It might be highly detrimental to the business.

We see everywhere many goods and situations such as this restaurant. Successful plays in London, popular sporting events, crowded nightclubs, limited edition sneakers, art exhibitions and other businesses and activities do not increase supply to a point where supply meets demand. Many persist with the strategy of excess demand. Why? Why wouldn't it be optimal to produce a few more sporting events when they are successful?

Becker's insight is that these are "social goods," meaning the consumers' demand for the good increases with the demand of others. Individuals are more attracted to goods and services that others find desirable and people are more interested in something the more popular it is.