Open Competition in League Sports

Abstract

Current baseball talks of contraction exemplify the monopoly power that Major League Baseball exercises. Baseball owners are able to exploit monopoly power by, inter alia, holding the number of franchises down to a sub-optimal level in order to facilitate bidding (in terms of stadium subsidies) by communities, as well as by failing to invest at optimal levels in their own teams, secure that the threat of entry is minimal. The article argues that the international practice of "promotion and relegation" tends to raise consumer welfare by increasing effective competition among teams in a league. Teams faced with the threat of relegation will efficiently invest to develop a better product for their fans. Communities without major league clubs have the ability, through support of a new entrant into a lower-tier league, see investment in that team rise to a level to secure promotion to the major leagues.

This article develops the welfare-enhancing potential of promotion and relegation, and compares the two above-described features of monopolistic behavior in North American sports leagues with evidence that competition-through-entry does have salutary effects in English soccer. With this economic background, the article turns to the development of a legal argument that maintenance of a closed monopoly league constitutes a violation of federal antitrust laws, applying general principles used to evaluate the exclusion of rivals from monopoly joint ventures. Finally, the article discusses various issues of how to implement such a remedy.