How not to address the maple bat issue.
The most prominent manufacturer of maple bats said Tuesday that baseball players and owners should ensure the quality of bats by paying roughly triple the price.
Sam Holman, founder of the Canadian company that makes the maple bats popularized by Barry Bonds, said baseball’s maple bat crisis — bats snapping into large pieces and flying toward players and into the stands — could be resolved by setting minimum prices that would compel manufacturers to use the finest wood rather than competing for business by selling cheaper bats made of lower-quality wood.
“It would level the competition,” Holman said. “That would do as much as any regulation of what kind of wood.”…
He can make a maple bat for $55 and sell it for $60 to $65, he said. He said he would support a $200 minimum so manufacturers would not be tempted to cut corners and use the lower-quality wood that he said is much more prone to breakage.
How would this cause bat companies to not cut corners? Players have already shown a willingness to use $65 bats. Maybe at a higher price, players would expect higher quality bats, but how would a player know whether or not he received a “$200″ bat and not a substandard one?
I think Mr. Holman is a bit more interested in restricting competition in the maple bat industry than he is in ensuring bat quality. Let’s say MLB adopts a $200 minimum price for maple bats. Assuming the demand for maple bats is highly inelastic, fewer players will use maple bats, but they will continue to use maple bats at a high rate. As bat-making technology improves or input prices fall, bat-makers will reap wind-fall profits and cannot pass cost savings on to players.
And let’s say a new maple bat company comes along that can provide the same, if not superior, quality bat. The competitor would have a hard time wooing users when players already have confidence in an existing supplier. One strategy to acquire customers would be to sell bats at a cheaper price, possibly even giving them away initially. However, this would be against league rules; and thus, new bat companies will be less likely to enter the market. It also prevents companies who develop new methods for producing high-quality bats at a cheaper price from entering the market.
This proposal is rent seeking, pure and simple. Let’s hope no one on the committee is stupid enough to buy this argument. A preferable alternative for ensuring bat quality would be to set up objective testing standards that all bats must meet. A breakage test could be one of the tests employed. This would not distort the competitive incentives of the bat industry, and bat makers would continue to seek methods for cutting costs without sacrificing quality while attempting to earn greater profits.