Originally Posted by Relinquis
I used to be a bankster. What does that have to do with Open Markets? M&A is rarely about freely available supply & demand and symmetry of information. Usually the rationale is the opposite!
No such thing as Open Market when it comes to Federer and Basel... for open markets think selling various non-essential spices in Turkish bazars in 16th century Ottoman empire.
Boring M&A example, as requested:
In many ways getting Federer to play your tournament is like trying to buy a company (TargetCo) that you really want because it would do wonders for your own bottom line, or inflate your ego (as CEO), however, the bankers of the target company (Federer's agent) know this and want to extract full value*. Thus, it becomes less about what Federer is worth in Open Market terms and more about what he is worth to the tournament and what the tournament can do vis-a-vis Federer's competitors (substitutes), fans (customers) and sponsors (suppliers). i.e. can you buy a competitor of your target instead as a substitute and can you influence key clients/suppliers/regulators of your target company to get TargetCo and it's advisors to accept a lower offer?
Market forces, Supply/Demand have little to do with it. It's more like trading chess pieces than trading baseball cards if you're looking for another contorted metaphor.
* This example is biased. It could very easily be the case that the tournament is trying to get Federer at a discount because they have leverage over his image. Kinda like a version of Greenmail (google it) in some way.
Market forces are the basic reasons here. Your example is just convoluted and does not the address the main issue. Federer is in demand by the tournament and supply of people like him are limited. That is why they want to get him. His competitor is Nadal who has his own market worth, and the tournament can use him to satisfy their demand to a certain extent.
The market is open because anyone can become a Federer if he has the ability. A closed market would be like a country recruiting only local players for its events, or the local union saying that only their members should be allowed to play. When that is not the case, the market is open.
Fed and Nadal are both in the open market and form the supply. Due to the value of these players, their demand is high. So a statement like 2 mil is outrageous does not make any sense. If it is outrageous, the tournament cannot pay it, and the price will come down. 2 mil sounds like a lot of money, but how many players can hit a forehand like Federer? That is what it boils down to.
People complain that doctors make less money than movie stars. It is not that doctors are being insulted, but whether you will buy a ticket to watch the daily life of a doctor.
I am not saying this is good or bad, but just the way it is.