Monopsony and Competition: The Impact of Rival Leagues on Player Salaries during the Early Days of Baseball
Department
Economics, Finance and Quantitative Analysis
Document Type
Article
Publication Date
7-1-2017
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.
Journal Title
Explorations in Economic History
Volume
65
First Page
55
Last Page
67
Digital Object Identifier (DOI)
10.1016/j.eeh.2017.01.002