Are baseball players paid their marginal products?

Abstract

Previous researchers found that baseball players under the reserve clause had been paid considerably less than their contributions to club revenues. We ask, has the new contractual system of free agency and final‐offer arbitration brought baseball salaries into line with marginal revenue products? Using public data for the 1986 and 1987 seasons, our basic answer is yes, major league salaries generally coincide with estimated marginal revenue products, though significant deviations exist. Experienced players are paid in accord with their productivity; young players, however, are paid less than their marginal revenue product, on average. This result is closely related to the market structure within baseball.

The Firm Specificity of Individual Performance: Evidence from Cardiac Surgery

“…This literature has generally focused on the implications of firm-specific capital for market outcomes such as the movement of workers between firms (Parsons, 1972;Jovanovic, 1979), rather than considering evidence for whether the actual performance of workers is firm specific. A second stream of literature focuses on the impact of free agency (i.e., the ability to consider or enter contracts with multiple firms) on market outcomes such as compensation (Kahn, 1993;MacDonald and Reynolds, 1994), contract duration (Kahn, 1993) and the allocation of workers across firms (Cymrot and Dunlevy, 1987;Krautmann and Oppenheimer, 1994). To the extent that they address worker performance, papers in this category tend to assume that a worker's marginal productivity is constant across firms (i.e., that performance is not firm-specific).…”

The Effect of Superstar Software on Hardware Sales in System Markets

“…We call these individual software titles of exceptional high quality "superstars" 2 . Prior literature has studied superstars in the music industry (Chung and Cox 1994), major league baseball (MacDonald and Reynolds 1994), and the movie industry (Collins, Hand and Snell 2002). However, the returns software superstars may have on hardware sales in system markets remains unexamined.…”

Antitrust Analysis of Sports Leagues

“…Furthermore, as players eligible for final-offer arbitration near eligibility for free-agency, their average salaries rise to roughly equal that of free agents. MacDonald and Reynolds (1994) find that, during the 1986 and 1987 seasons, hitters with 1-2 years of experience earned 5% of an additional increment in their career MRP, hitters with 3-6 years of experience earned 58%, and hitters with 7 or more years of experience earned 106%; the corresponding figures for pitchers were 8%, 86%, and 122%. Gustafson and Hadley (1995) find that, for the 1990 season, 25.1% ($174,079) of the gap between the salaries of hitters eligible and ineligible for arbitration cannot be explained by other factors and thus is attributed to MLB's monopsony power; the corresponding figure for pitchers is 40.5% ($242,965).…”

“…Major market teams like the New York Yankees can attract more fans to their games and negotiate local television deals many times larger than small market teams like the Pittsburgh Pirates. Krautmann (1999), Zimbalist (1992), and Bruggink and Rose (1990) estimate that each additional one million people in a MLB team's market increases team revenue by $2.12 million, $2.40 million, and $1.47 million, respectively; moreover, MacDonald and Reynolds (1994) find that each $1 billion increase in metropolitan income increases MLB team revenue by $750,000. Not surprisingly, the major market teams want to keep their revenue; small market teams want team revenues to be shared.…”