All of the steroids talk has stimulated a discussion on baseball’s anti-trust exemption over at Baseball Musings. A reader comments,
Look, the MLB exists only because Congress is willing to grant it an exception from anti-trust laws.
If anything, Major League Baseball would be stronger without the antitrust exemption. It would have to compete against independent minor leagues.
While this discussion focuses on the effect of MLB’s monopoly power on the steroid issue, I want to disagree with both of the above statements on the importance of the anti-trust exemption. I believe the anti-trust exemption has virtually no effect on the structure of MLB as we see it today. If anything, the anti-trust exemption may make baseball better than the other major sports leagues, because less effort is wasted on frivolous anti-trust lawsuits that rarely solve anything. Now, I don’t wish to defend my second point at this time, so feel free to disregard. I just wanted to add my opinin on this. Sorry to drop this bomb and run, but this is a huge argument for another day. I think the important issue is that the anti-trust exemption does nothing to give MLB any protection from outside competition. Here is why:
1) The anti-trust exemption does not prevent other leagues from rising up to compete with MLB. In fact, any league that attempted to compete with MLB would receive the same anti-trust exemption. I think there is a public misperception that the exemption is a barrier to entry by rival leagues. For example, the Continental League was prepared to open for play in the early 1960s before it reached agreement with the MLB to expand. Other barriers to entry may exist, such as a natural monopoly cost structure (which I don’t buy either), but the exemption is not such a barrier.
2) When compared to the other major sports leagues in the US, MLB acts no more like a monopolist than the other leagues. A simple monopolist will restrict output, thereby raising the price. — I am ignoring the possibility of a price-discriminating monopolist here, but a price-discriminating monopolist does not produce near the harm of a single-price monopolist. — If the anti-trust exemption gives more market power to baseball its output should be less and its price higher. The following table lists the number of teams, regular season games, the average ticket price per game, and the average ticket price adjusted for the percent of the regular season viewed per game.
League Teams Games Price Adj. Price NBA* 30 82 $43.60 $35.75 NFL 32 16 $50.02 $8.00 NHL 30 82 $41.56 $34.08 MLB 30 162 $18.30 $29.65 Ave. 30.5 85.25 $38.37 $26.87
(*Including my hometown Charlotte Bobcats. All other data from the 2002-2003 season available from Rodney Fort.)
If anything, MLB seems to be producing more output at a lower price than the other leagues; all of which lack the anti-trust exemption.
A few things to rap this up. This does not mean that MLB does not act like a monopolist. In fact, all of the sports leagues may be acting like monopolists. However, I don’t think there is any evidence that the anti-trust exemption affects MLB’s monopoly behavior. I also realize that some sports economists disagree with this (Zimbalist), but others feel that the exemption is not important (Scully and Shughart). Also, I acknowledge that there are some problems comparing leagues with differing cost and demand structures, but I don’t think the difference are enough to simply throw out these numbers.
Fire away! Now, on to steroids…(to be continued).