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Competitive Balance and Free Agency in Major League Baseball

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  • Peter Fishman

Abstract

In 1976, the Basic Agreement introduced free agency to Major League Baseball; previously, the reserve clause gave a team indefinite monopsonistic rights to a player's services. Owners claimed that the new system would enable large market teams to destroy Major League Baseball's competitive balance. Coasian logic, however, would suggest that player allocation would not be affected by free agency. Because player distribution would not change, the Coase Theorem implies that free agency should have no effect on competitive balance. My paper tests this claim by developing an econometric model of competitive balance in Major League Baseball.

Suggested Citation

  • Peter Fishman, 2003. "Competitive Balance and Free Agency in Major League Baseball," The American Economist, Sage Publications, vol. 47(2), pages 86-91, October.
    • Handle: RePEc:sae:amerec:v:47:y:2003:i:2:p:86-91
    DOI: 10.1177/056943450304700208
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    References listed on IDEAS

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    1. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-930, December.
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    3. 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.
    4. Rodney Fort & James Quirk, 1995. "Cross-subsidization, Incentives, and Outcomes in Professional Team Sports Leagues," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1265-1299, September.
    5. Michael R. Butler, 1995. "Competitive Balance in Major League Baseball," The American Economist, Sage Publications, vol. 39(2), pages 46-52, October.
    6. Kahn, Lawrence M, 1993. "Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 157-164, February.
    7. Lawrence M. Kahn, 2000. "The Sports Business as a Labor Market Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 75-94, Summer.
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    Cited by:

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    3. Dafeng Xu, 2014. "Who Benefits from Globalization of Labor? Evidence from the 'Bosman Ruling'," ERSA conference papers ersa14p1089, European Regional Science Association.

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