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Market size and the demand for talent in major league baseball

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  • Anthony Krautmann

Abstract

In this article, we look at how revenues affect the personnel decisions of Major League Baseball (MLB) teams. It is well established that teams with the strongest demands end up with the top stars and deepest benches, thus the best chance of winning. Since a team's demand for talent is its Marginal Revenue Product, the critical test is whether large-market teams have a greater Marginal Revenue (MR). Controlling for the impact of re-distributional efforts by MLB, we find that the MR of a large-market team is about 50% larger than that of a small-market team. Furthermore, we find that re-distributive efforts have a more severe effect on small-market teams. “Are the New York Yankees a dynasty because they outsmarted everyone? No, they just outspent everyone.” Sam Smith, Chicago Tribune

Suggested Citation

  • Anthony Krautmann, 2009. "Market size and the demand for talent in major league baseball," Applied Economics, Taylor & Francis Journals, vol. 41(25), pages 3267-3273.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:25:p:3267-3273
    DOI: 10.1080/00036840701582121
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    Cited by:

    1. Joshua M. Congdon-Hohman & Jonathan A. Lanning, 2018. "Beyond Moneyball," Journal of Sports Economics, , vol. 19(7), pages 1046-1061, October.
    2. Terry, Ryan P. & McGee, Jeffrey E. & Kass, Malcolm J., 2018. "The not-so-free agent: Non-performance factors that contribute to free agent compensation premiums," Sport Management Review, Elsevier, vol. 21(2), pages 189-201.
    3. John D. Burger & Stephen J. K. Walters, 2008. "The Existence and Persistence of a Winner's Curse: New Evidence from the (Baseball) Field," Southern Economic Journal, John Wiley & Sons, vol. 75(1), pages 232-245, July.
    4. Sanchez Santos Jose Manuel & Dopico Jesús & Castellanos Pablo, 2012. "Playing Success and Local Market Size in Spanish Football League: Can Small Cities Dream of Winning Teams?," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 8(2), pages 1-23, June.
    5. John D. Burger & Richard D. Grayson & Stephen J.K. Walters, 2006. "Initial Public Offerings of Ballplayers," Working Papers 0624, International Association of Sports Economists;North American Association of Sports Economists.
    6. John D. Burger & Stephen J. K. Walters, 2009. "Uncertain Prospects," Journal of Sports Economics, , vol. 10(5), pages 485-501, October.
    7. Rockerbie, Duane W, 2012. "Exploring inter-league parity in North America: the NBA anomaly," MPRA Paper 43088, University Library of Munich, Germany.
    8. John L. Solow & Anthony C. Krautmann, 2007. "Leveling the Playing Field or Just Lowering Salaries? The Effects of Redistribution in Baseball," Southern Economic Journal, John Wiley & Sons, vol. 73(4), pages 947-958, April.

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