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Free-Agency and the Competitiveness of Major League Baseball

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  • Craig Depken

Abstract

I investigate whether the removal of the reserve clause in professional baseball has affected the competitive nature of the industry in the context of whether teams are actively attempting to monopolize in high- valued inputs. It is possible that a very few teams could purchase all of the best players over time leading to a highly concentrated industry in certain production categories and adversely affect the competitive nature of the industry. To investigate this possibility, I calculate the Herfindahl-Hirschman Index for homeruns and strikeouts in professional baseball from 1920 to 1993, and relate them to structural changes in baseball. I isolate the structural effect of free-agency and find no evidence that free agency has altered the competitive nature of the industry. My findings support those in Hylan, Lage and Treglia (1996).

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 14 (1999)
Issue (Month): 3 (May)
Pages: 205-217

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Handle: RePEc:kap:revind:v:14:y:1999:i:3:p:205-217

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Web page: http://www.springerlink.com/link.asp?id=100336

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References

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  1. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Lehn, Kenneth, 1984. "Information Asymmetries in Baseball's Free Agent Market," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 37-44, January.
  3. Sumner, Daniel A, 1981. "Measurement of Monopoly Behavior: An Application to the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 1010-19, October.
  4. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
  5. James M. MacDonald, 1987. "Competition and Rail Rates for the Shipment of Corn, Soybeans, and Wheat," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 151-163, Spring.
  6. Marvel, Howard P, 1978. "Competition and Price Levels in the Retail Gasoline Market," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 252-58, May.
  7. Evans, William N & Kessides, Ioannis N, 1993. "Localized Market Power in the U.S. Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 66-75, February.
  8. Drahozal, Christopher R., 1986. "The impact of free agency on the distribution of playing talent in major league baseball," Journal of Economics and Business, Elsevier, vol. 38(2), pages 113-121, May.
  9. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-44, November.
  10. Sullivan, Daniel, 1985. "Testing Hypotheses about Firm Behavior in the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 586-98, June.
  11. Geroski, P A, 1981. "Specification and Testing the Profits-Concentration Relationship: Some Experiments for the UK," Economica, London School of Economics and Political Science, vol. 48(191), pages 279-88, August.
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Cited by:
  1. Stefan Szymanski, 2006. "The Champions League and the Coase Theorem," Working Papers 0617, International Association of Sports Economists & North American Association of Sports Economists.
  2. DepkenII, Craig A., 2000. "Wage disparity and team productivity: evidence from major league baseball," Economics Letters, Elsevier, vol. 67(1), pages 87-92, April.
  3. Aju Fenn & Peter Allmen & Stacey Brook & Thomas Preissing, 2005. "The Influence of Structural Changes and International Players on Competitive Balance in the NHL," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(2), pages 215-224, June.
  4. Pelnar, Gregory, 2007. "Antitrust Analysis of Sports Leagues," MPRA Paper 5382, University Library of Munich, Germany.
  5. Jean-Pascal Gayant & Nicolas Le Pape, 2012. "How to account for changes in the size of Sports Leagues: The Iso Competitive Balance Curves," Working Papers halshs-00856122, HAL.
  6. repec:qut:auncer:2013_04 is not listed on IDEAS
  7. Egon Franck & Stephan Nüesch & Jan Pieper, 2009. "Specific Human Capital as a Source of Superior Team Performance," Working Papers 0113, University of Zurich, Institute for Strategy and Business Economics (ISU).
  8. Evan S. Totty & Mark F. Owens, 2011. "Salary Caps and Competitive Balance in Professional Sports Leagues," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 11(2), pages 46-56, Fall.
  9. Martin Schmidt & David Berri, 2002. "Competitive Balance and Market Size in Major League Baseball: A Response to Baseball's Blue Ribbon Panel," Review of Industrial Organization, Springer, vol. 21(1), pages 41-54, August.
  10. P Dorian Owen & Nicholas King, 2013. "Competitive Balance Measures in Sports Leagues: The Effects of Variation in Season Length," NCER Working Paper Series 92, National Centre for Econometric Research.
  11. Vasileios Manasis & Vassiliki Avgerinou & Ioannis Ntzoufras & J. James Reade, 2011. "Measurement of competitive balance in professional team sports using the Normalized Concentration Ratio," Economics Bulletin, AccessEcon, vol. 31(3), pages 2529-2540.
  12. P. Owen & Michael Ryan & Clayton Weatherston, 2007. "Measuring Competitive Balance in Professional Team Sports Using the Herfindahl-Hirschman Index," Review of Industrial Organization, Springer, vol. 31(4), pages 289-302, December.
  13. Jennifer K. Ashcraft & Craig A. Depken, II, 2007. "The Introduction of the Reserve Clause in Major League Baseball: Evidence of its Impact on Select Player Salaries During the 1880s," Working Papers 0710, International Association of Sports Economists & North American Association of Sports Economists.
  14. Jaret Treber & Rachel Levy & Victor Matheson, 2011. "Gender Differences in Competitive Balance in Intercollegiate Basketball," Working Papers 1106, College of the Holy Cross, Department of Economics.
  15. Anthony C. Krautmann & Lawrence Hadley, 2006. "Dynasties versus pennant races: competitive balance in major league baseball," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 287-292.
  16. Allen R. Sanderson & John J. Siegfried, 2003. "Thinking About Competitive Balance," Vanderbilt University Department of Economics Working Papers 0318, Vanderbilt University Department of Economics.
  17. P. Dorian Owen, 2013. "Measurement of Competitive Balance and Uncertainty of Outcome," Working Papers 1311, University of Otago, Department of Economics, revised Aug 2013.

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