Market size and the demand for talent in major league baseball

Anthony Krautmann

Applied Economics, 2009, vol. 41, issue 25, pages 3267-3273

Abstract: In this article, we look at how revenues affect the personnel decisions of Major League Baseball (MLB) teams. It is well established that teams with the strongest demands end up with the top stars and deepest benches, thus the best chance of winning. Since a team's demand for talent is its Marginal Revenue Product, the critical test is whether large-market teams have a greater Marginal Revenue (MR). Controlling for the impact of re-distributional efforts by MLB, we find that the MR of a large-market team is about 50% larger than that of a small-market team. Furthermore, we find that re-distributive efforts have a more severe effect on small-market teams. “Are the New York Yankees a dynasty because they outsmarted everyone? No, they just outspent everyone.” Sam Smith, Chicago Tribune

Date: 2009

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