Wins,Profit,or Nothing? Decomposing Productive Inputs to Understand Firm Maximization

Abstract

Traditional explanations of Major League Baseball (MLB) historical episodes (e.g., designated hitter rule introduction; lowering of mound; steroid era) tend to presume that attendance (gate demand) is positively impacted by increased league-wide offense. Previous economics studies find some supporting evidence. We employ concepts related to the relatively advanced concept of Wins Above Replacement (WAR) to test these findings. Using WAR components related to offense, defense, and pitching and conditioning upon team fixed effects, we find that the marginal attendance effects of wins from each category are statistically identical in models that use actual team wins as an explanatory variable. However, when we employ expected team wins taken from Vegas over/under season win predictions as an explanatory variable, we estimate that more offensively oriented teams experience a statistically significant decrease in attendance. Therefore, we find some evidence that fans might dislike offense relative to defense and pitching. At the least, we find no evidence that fans prefer offense. Given the present results and those of Ehrlich et al. (2020) showing a salary premium paid to MLB offensive production, we conclude that neither equilibrium win nor profit-maximizing behavior—nor any strict mix of the two—could be driving MLB labor market outcomes.

Keywords

major league baseball offense defense pitching wins above replacement profit maximization

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