Baseball Musings: No Real Competition

May 02, 2007

No Real Competition

Russell Roberts at Cafe Hayek writes on the lack of economic competition in baseball:

My claim is that baseball, while competitive (in the everyday sense of the word), is not a very good testing ground for the power of competition as economists use the term. It's not a very good measure of how competition works in markets even though there is a "market" for baseball players in the everyday sense of the word.
The biggest problem with generalizing from baseball to the rest of the economy is that if you do a lousy job in baseball, you still make a lot of money. That is hard to do in most markets. In most markets, if you fail to keep up with your competitors, if you use outdated technology, if you fail to please the customer, you don't just make less money than your competitors. You go out of business.

In baseball, you can have an inept owner who hires an inept general manager, who signs inept players (or who doesn't bother signing ept ones), who fails to spend sufficient money on the fundamental assets necessary to excel, who signs players who do the little things and the big things badly, who neglects the team's farm system. You can perform poorly, year after year and you can not only survive, you can thrive.

Since 1998, the Kansas City Royals have been horrible. They have won more games than they've lost only once in that span. The other years, they've been dreadful. They've lost 100 games or more four times since 1998. Yet according to Forbes, the value of the franchise doubled between 1998 and 2005.

There are ways around this within the structure of major league baseball. MLB should want each of their fanchises to be as strong as possible, because that's best for the growth of the game overall. This is something I'll discuss in a future Baseball Prospectus column. My latest is up here (subscription only).

Posted by David Pinto at 11:44 AM | Management | TrackBack (0)

Comments

Baseball is first and foremost entertainment, a distraction for most citizens. We as fans will support baseball in the same way that we'll watch bad t.v. shows or go to lame movies. We don't JUST go see Oscar winners.

Posted by: m phillip baudrand at May 2, 2007 12:59 PM

But there is competition among TV shows in time slots, and really lame shows don't last. In fact, many good shows that don't get ratings disappear rather quickly. That doesn't happen with baseball teams.

Posted by: David Pinto at May 2, 2007 01:05 PM

I think it is wrong to consider each sports team within a sport as a true competitor to the others. GM and Ford are competitors; each sale by one of them is a lost sale to the other.

But if I go to a Yankees game -- because I'm a Yankee fan and live nearby -- that is not a lost sale to the Tigerss, as I realistically am not going to fly to Detroit just to take in a Tigers game.

Nor are the Yankees and Tigers totally competing with each other. Yes, they do want to win on the field -- a win for one is a loss for the other (the zero sum game aspect) but if the Yankees buy up all the players, then they go out of business along with everyone else as no games are able to be played.

Posted by: rbj at May 2, 2007 01:12 PM

Boy wouldn't it be interesting if baseball was set up in, say, two or three tiers in which teams moved up and down ala soccer in most countries. :) Imagine Little Rock having a record run to make MLB, whilea historic franchise like Kansas City fell to the third tier (a Leeds-like fall). I love baseball, but the closed system has always bothered me.

Posted by: Kent at May 2, 2007 01:25 PM

Yes, Kent, and imagine then dozens of teams in the NY metro area, for example, the way there are football teams in/around London.

Now that's competition.

Posted by: Jim in Chicago at May 2, 2007 03:47 PM

At least that would dilute the Yankees' popularity.

A Scottish guy I know says that the difference is that in soccer, the teams form the league, whereas in North American sports, the leagues form the teams (well, generally).

It's an interesting "what if" scenario. It would also, of course, have to involve the end of the farm team system. As it is, if you do a great job running a AAA team, showing that your city can draw a crowd, you get rewarded by having your franchise moved to somewhere like Edmonton when they put a major league franchise in your town.

Posted by: Adam Villani at May 2, 2007 03:57 PM

Think of MLB as a single entity in competition with not only other sports leagues, but with all other forms of entertainment as well. Each of the 30 teams represents an individual product that MLB presents.

And that point the author makes about Kansas City is pretty weak. First of all you would have to take inflation and economic/population growth into account. Also, 1998 was only three years after the strike ended. There is a natural recovery from a low point that all of the organizations will have gone through.

Posted by: andrew at May 2, 2007 07:07 PM

the whole anti-trust exemption sorta screws any hope of it being a true market to begin with. I'm not sure why this is interesting.

Posted by: Steve at May 3, 2007 11:56 AM

Agreed, Steve. Scarcity, limited supply...

Posted by: abe at May 3, 2007 01:32 PM