The Sports Business as a Labor Market Laboratory

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1) The article “The Sports Business as a Labor Market Laboratory,” by Lawrence M. Kahn focuses on data on the rise and fall of rival sports leagues and the granting of free agency rights in professional sports and other things. I read pages seventy-five to eighty-three of the article. Overall, sports owners are a small and interconnected group. This suggests that they have the ability to band together and act as monopsonists in paying their players. A monopsony is a market condition that exists when there is one buyer. Therefore, the result of a monopsony for sports owners is that player pay is held below marginal revenue. Sports owners hold their monopsony over players because in many instances the player only has the option of negotiating with one team. In this instance, salaries are determined by individual team player bargaining in which marginal revenue product, and outside options available to teams and players, will affect the outcome. Baseball is the oldest major league sport in the United States beginning with the birth of the national league in 1876. When the reserve clause was passed in 1879, owners gained even more monopsony power, and salaries dropped. The reserve clause stated that players were bound to the team that originally acquired the rights to contract with them. The reserve clause caused owners to have additional monopsony power over players, therefore player salary dropped.

However, salaries began to rise throughout the years and this may have been because of the growing popularity of baseball. The huge success of the American League brought with it a dramatic rise in player salaries, beginning in the 1900. The early experiences of Major League Baseball provide some compelling evidence for the potential impact of monopsony in the labor market. Baseball had no competition in their labor markets until the advent of free agency in 1976.

Overall this article emphasizes the fact that during the 1980’s there appeared to be a...
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