I haven’t followed tennis closely in a while, but I found myself watching a fair amount of the U.S. Open this year and got interested in the distribution of overall tennis earnings. Perhaps not so surprisingly since these are literally tournaments, the industry turns out to have a highly skewed tournament-style wage structure.
This is important to understanding ongoing debates over how much decent people should despise rich high-tech entrepreneurs. The most prominent men’s professional tennis players are the men’s professional tennis players who win the tournaments. And those guys sure are rich. A lot of high tech has the structure. Instead of Facebook proving to be two or three or four times as successful as similar-but-not-quite-as-good enterprises such as Friendster or Myspace, it ends up completely destroying the alternatives and dominating the marketplace. So Mark Zuckerberg and his other early employees and investors win the tournament. Ex post someone ends up with billions of dollars even though ex ante the expected returns from launching a new website are pretty low.