Dominance, Recontracting, and the Reserve Clause: Major League Baseball.

This article examines the extent of domination by the large Standard Metropolitan Statistical Area baseball teams that could be expected in a competitive player market and the extent to which the degree of domination is sensitive to alternative specifications of the owner's objective function. Much of the work in the economics of professional sports has focused on the effects of special antitrust exemptions granted to baseball. A central policy issue which has received considerable attention in the theoretical literature is the allocational effects that result from monopsony practices such as baseball's reserve clause. This effectively transfers ownership rights from the player to the team owner. Professional baseball executives, as well as fans and the press, have argued that the elimination of such monopsony restrictions and the antitrust exemption granted professional baseball would lead to domination in player strengths by the large city teams and ruination of the sport. However, the analytical position in the economics literature is clear on this subject: as long as property rights are well defined and recontracting through sales of players' contracts is permissible and costless, a labor market with monopsonistic restrictions leads to the same allocation of players and relative team strengths as does a competitive labor market; only the distribution of wealth between players and owners is affected.