Review of Industrial Organization
12: 373–387, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
The Increasing Competitive Balance in Major
Graduate Research Professor, Decision and Information Sciences, College of Business
Administration, University of Florida, Gainesville, FL 32611, U.S.A.
Abstract. This paper explores the changing competitive balance in Major League Baseball through
the relative-entropy measure of information theory. It is shown that while competitive balance in both
leagues has been on an upward path during the 20th century, the path has had numerous detours
that resulted from some on-the-ﬁeld and some off-the-ﬁeld changes that Major League Baseball has
undergone during the past 75 years. The most important detours occurred in the wake of the Black Sox
scandal of 1919, Jackie Robinson’s breaking the color barrier and the concurrent spread of television
and erosion of the minor leagues, franchise moves and major league expansion, and free agency.
Key words: Major league baseball, competition, economic models.
With Rottenberg (1956) writing the seminal paper, interest in the economics of
Major League Baseball was initially stimulated by questions about the effects of
(1) the reserve clause that forever bound players to the teams with which they
initially signed, in tandem with (2) differences in the teams’ market size and
drawing power. That interest has proved to have legs, particularly with respect
to whether the real-world consequences of free agency and the dissolution of the
reserve clause were what economic theory would have predicted (see, e.g., Hylan
et al., 1996).
Among other considerations that have to be factored in when judging any
package of rules established by a sports league is that of their impact on “competitive
balance”. Doubtless there are exceptions of which I am unaware, but as a general
principle all sports leagues, whether professional or amateur, profess a desire to
“maintain competitive balance”. Indeed, maintaining league balance in the major
leagues was an expressed goal of the 1903 National Agreement that provided the
blueprint for the modern major leagues (Davis, 1974, p. 363). Nonetheless, the
assertion often becomes an appealing raison d’
etre for the more egregious sins that
a cartel’s rules commit against the players and/or the public (see, e.g., Defendant’s
Closing Argument Brief, 1984, pp. 14–15).
The computational assistance of Ms. Bilge Ciftci is gratefully acknowledged.