Market Power

Musings by an academic economist on the power of markets and the power over markets.

Thursday, December 09, 2004

The Baseball Player's Labor Market - Part Deux

In this earlier post, I briefly described the baseball player’s labor market. The Major League Baseball Players’ Association (MLBPA), we’d think, would be champions of the free agent labor market. Before free agency, all players were reserved. The reserve clause allowed teams the option of renewing each player’s contract once that contract expired, essentially binding the player to that team until the player quit the league or the team traded/sold the contract to another team. This held salaries down. Free agency would give players more options, create more competition for players, and increase their salaries. Logically, the MLBPA would be a likely champion of unlimited free agency. Well, as Lee Corso would say, “Not so fast my friend.”

Free agency was ushered in via an arbitration decision in 1975 regarding Andy Messersmith and Dave McNally. Both McNally and Messersmith had played the 1975 season without a new contract. Marvin Miller, head of the MLBPA at that time, thought he had found a loophole in the Collective Bargaining Agreement that would make the two players free agents. The case went to an arbitrator, Peter Seitz, who concurred with Miller. Free agency was here to say, and Marvin Miller was happy…. Right?

Here’s a quote from Miller (my source for the quote is Rod Fort’s Sports Economics Text):

“In the wake of the Messersmith decision…, it dawned on me, as a terrifying possibility, that the owners might suddenly wake up one day and realize that yearly free agency was the best possible thing for them: that is, if all players became free agents at the end of each year, the market would be flooded, and salaries would be held down…. In the midst of all the panic in the owners’ ranks after the” (Peter Seitz) “arbitration decision… there was” (Charley) “Finley” (then owner of the Oakland A’s), maybe the only original thinker in the group, saying, ‘Hey, what’s the problem? Let them be free agents every year. It’ll flood the market with players; it’ll keep salaries down.’ It was so logical, so obvious, that to this day I cannot understand why other owners did not think of it.

No, players don’t like competitive labor markets either if market power is one of their choices.