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On the evolution of competition: an application of nonlinear tests

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  • Martin Schmidt

Abstract

A corollary of the Coase Theorem maintains that, where free market precepts exist, the allocation of property rights would not impact the level of competition within an industry. Within the Major League Baseball industry, for example, the theorem would suggest that institutional arrangements such as free-agency would not impact player distributions and, therefore, would fail to alter competitive balance. In order to examine this implication, the present paper investigates the univariate behaviour of competition balance. In the end, it appears that an increased labour pool, rather than institutional changes, is responsible for movements in competitive levels within the industry. Specifically, the evidence suggests that competitive balance measures are trend-stationary. However, the trend is nonlinear and is common to Baseball's labour pool, i.e. the two co-trend.

Suggested Citation

  • Martin Schmidt, 2006. "On the evolution of competition: an application of nonlinear tests," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 1-12.
  • Handle: RePEc:taf:applec:v:38:y:2006:i:1:p:1-12
    DOI: 10.1080/00036840500218604
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    References listed on IDEAS

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    1. Peter C.B. Phillips & Sam Ouliaris & Joon Y. Park, 1988. "Testing for a Unit Root in the Presence of a Maintained Trend," Cowles Foundation Discussion Papers 880, Cowles Foundation for Research in Economics, Yale University.
    2. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    3. Junsoo Lee & Mark C. Strazicich, 2013. "Minimum LM unit root test with one structural break," Economics Bulletin, AccessEcon, vol. 33(4), pages 2483-2492.
    4. Martin B. Schmidt & David J. Berri, 2003. "On the Evolution of Competitive Balance: The Impact of an Increasing Global Search," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 692-704, October.
    5. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    6. Leybourne, Stephen J. & C. Mills, Terence & Newbold, Paul, 1998. "Spurious rejections by Dickey-Fuller tests in the presence of a break under the null," Journal of Econometrics, Elsevier, vol. 87(1), pages 191-203, August.
    7. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
    8. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
    9. Martin Schmidt, 2001. "Competition in Major League Baseball: the impact expansion," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 21-26.
    10. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
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