Monopsony and Competition: The Impact of Rival Leagues on Player Salaries During the Early Days of Baseball

Posted: 2 Dec 2015 Last revised: 17 Mar 2017

Date Written: November 30, 2015

Abstract

During the early days of professional baseball, the dominant major leagues imposed a “reserve clause” designed to limit player wages by restricting competition for labor. Entry into the market by rival leagues challenged the incumbent monopsony cartel’s ability to restrict compensation. Using a sample of player salaries from the first 40 years of the reserve clause (1880-1919), this study examines the impact of inter-league competition on player wages. This study finds a positive salary effect associated with rival league entry that is consistent with monopsony wage suppression, but the effect is stronger during the 20th century than the 19th century. Changes in levels of market saturation and minor-league competition may explain differences in the effects between the two eras.

Keywords: monopsony, marginal revenue product, baseball, competition

JEL Classification: J24, L13, N31, Z2

Suggested Citation

Bradbury, John Charles, Monopsony and Competition: The Impact of Rival Leagues on Player Salaries During the Early Days of Baseball (November 30, 2015). Explorations in Economic History, Forthcoming, DOI: org/10.1016/j.eeh.2017.01.002. Available at SSRN: https://ssrn.com/abstract=2697261 or http://dx.doi.org/10.2139/ssrn.2697261

John Charles Bradbury (Contact Author)

Kennesaw State University ( email )

Dept. of Economics, Finance, and Quant. Analysis
560 Parliament Garden Way NW
Kennesaw, GA 30144
United States

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