Baseballblogging: On Economic Privlege

October 26, 2006

We had a little discussion about “economic privlege,” “economic rent,” government, and monopoly power in my Public Finance course a week or so ago, and in light of the world series, I feel like examining it a little bit further. The case being made by my professor was that MLB is a monopoly. And true to historical form, it is a government sanctioned, protected and regulated monopoly. I’m not disputing that government in the United States has been involved in the monopolization of the great game. But it’s worth considering: Are professional sports natural monopolies?

I’m not sure - but there are at least some monopolistic elements in any sort of “league” play, i.e., there simply cannot unbridled free entry into any particular league; a league is defined by exclusion. There is also a severe and natural limitation on the quantity and quality of athletes available. People simply don’t want to pay money to watch beer-league softball. As far as the natural monopoly angle is concerned - there is only so much baseball talent in the world at any given time, and it’s not subject to radical swings, as the pendulum of time and human aging moves, well, relatively slowly, other things considered. The only true monopoly that MLB has is the monopoly over their own collective. Anyone is free to launch a rival league. It hasn’t worked so well before…

I think the “monopoly” held by MLB is probably the least significant factor in determining athletes’ salaries and ticket prices. Fan loyalty passed down from grandfather to father to son, and 150 years of apple-pie history (except for those pesky strikes, and steroids, and gambling) certainly contribute their fair share to the demand for baseball. Demand for the very best baseball is not the same as demand for any baseball.

I do concede that MLB is a monopoly in fact. I’m just not sure that this statement says very much of anything. According to Cournot’s theory of monopoly, MLB should be acting as a profit maximizing producer. There is absolutely no reason that World Series tickets are as (nominally) inexpensive as they are, year after year. The class discussion hinged on free-entry, competition, lower ticket prices (and salaries) - which would probably come at the expense of smaller stadiums, or less public funding, etc. This is all well and good, not to mention theoretically sound.

Should the local governments “own” stadiums to the exclusive benefit of the MLB cartel? (Most stadium are publicly held) Of course not. Does this privlege go a long way to permit the skyrocketing salaries? Without a doubt. If owners had to seriously consider the NPV of long term, uncertain future revenue when developing a stadium, you can bet they’d be smaller and more modest, and the available funds from which the athletes are paid would be greatly reduced.

But I have a hard time imagining that the landscape of professional sports would be terribly different than it is at present. Is it conceivable that there would be some sort of über-league, which played only in the 12 largest commercial markets, and that membership in the league could be revoked due to unsatisfactory revenues? Sure. Might we have a handful of regional baseball leagues throughout the country - several teams in each state, playing significantly shorter seasons? Absolutely. Maybe then, they could get together and duke it out with Japan and Latin America for a real World Series.

But through the process of competition, one or two baseball leagues will emerge as the best, most profitable, most successful leagues. How they managed their own collective (and its important to concede that a league is always a collective) will be up to them. It is simply a non sequitir to suggest that lack of “free entry” into MLB is what’s inflating the athletes’ salaries.

As usual, the presence of economic privlege, granted by the government (i.e., free stadiums) gives rise to rent-seeking, which gives rise to consumers getting screwed and special interests getting served.


Posted in: Potpourri

Comments

Leave a Comment

If you would like to make a comment, please fill out the form below.

Name (required)

Email (required)

Website

Comments

Archives

Categories