Martin Schmidt and David Berri, “Competitive Balance and Market Size in Major League Baseball: A Response to Baseball’s Blue Ribbon Panel,” Review of Industrial Organization, 21 (2002), 41-54.
Professors Schmidt (Portland State University) and Berri (California State University—Bakersfield) start by reviewing the Blue Ribbon Panel’s main concern: a deterioration of competitive balance to the point that even on opening day, most small MLB market teams have no reasonable shot at post-season play. Schmidt and Berri proceed to discuss the numerous alternative metrics of balance, and more important, the alternative metrics for identifying MLB’s small and large markets.
The most important part of the paper discusses the identification of large versus small markets on the basis of exogenous variables (those the team has no control over like CMSA population) or endogenous variables (those the team can control directly or indirectly like team revenue or team payroll). Their conclusion is that the exogenous variables defining market size have NO impact on a team’s win percent and therefore NO impact on competitive balance in MLB. On the other hand, the endogenous variables, including total team revenue, operating income, and team payroll, do have positive impacts on teams’ win percents as expected.
From this, they conclude that the source of the competitive balance problem is not differences in the size of home markets. Rather, the problem (if there is a problem?) must be attributed to the owners and managers who run the team in the front office and in the dugout. These are the people who are responsible for transforming revenue into payroll, payroll into playing talent, playing talent into team wins, and wins back into revenue.
The quantitative analysis is not difficult to understand although the authors do assume that the reader is familiar with Gini coefficients and regression analysis. The topic of competitive balance has been widely written on by sports economist, and I think that most (including myself) would be in general agreement with Schmidt and Berri’s conclusions. However, the authors do have a unique approach to the topic, so the paper is worthwhile for all baseball scholars interested in the problem of balance.
Reviewed by: Lawrence Hadley
University of Dayton
Dayton, OH 45469-2251
Copyright © 2003 Larry Hadley. All rights