Market Power

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

Tuesday, December 07, 2004

Today is the Day!

Today’s the day in baseball! Teams have until midnight tonight to offer their current free agents arbitration. If another team signs the player before today’s deadline, it must give the player’s old team a draft pick as compensation.

If a player’s current team does not offer him arbitration, it loses the right to bargain with him until May 1st.

If his current team does make this offer, it retains the right to negotiate with him until January 8th. If he signs elsewhere, his team gets a draft pick as compensation. But the team runs the risk that the player will accept the offer. If he accepts the offer, then the team will have to go through the arbitration process with the player. The decision to offer arbitration to a free agent depends upon a comparison of the costs and benefits of making the offer.

As of noon CST here in Minnesota, of the more than 200 free agents available on the market, only 25 have signed contracts (23 in the Majors in the US) at this time. The restrictions placed on the market by the arbitration deadline is one reason for this. I expect there to be much more activity in the next couple of days.