On the evolution of competition: an application of nonlinear tests

Martin Schmidt

Applied Economics, 2006, vol. 38, issue 1, 1-12

Abstract: A corollary of the Coase Theorem maintains that, where free market precepts exist, the allocation of property rights would not impact the level of competition within an industry. Within the Major League Baseball industry, for example, the theorem would suggest that institutional arrangements such as free-agency would not impact player distributions and, therefore, would fail to alter competitive balance. In order to examine this implication, the present paper investigates the univariate behaviour of competition balance. In the end, it appears that an increased labour pool, rather than institutional changes, is responsible for movements in competitive levels within the industry. Specifically, the evidence suggests that competitive balance measures are trend-stationary. However, the trend is nonlinear and is common to Baseball's labour pool, i.e. the two co-trend.

Date: 2006
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DOI: 10.1080/00036840500218604

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