In 1976, the Basic Agreement introduced free agency to Major League Baseball; previously, the reserve clause gave a team indefinite monopsonistic rights to a player's services. Owners claimed that the new system would enable large market teams to destroy Major League Baseball's competitive balance. Coasian logic, however, would suggest that player allocation would not be affected by free agency. Because player distribution would not change, the Coase Theorem implies that free agency should have no effect on competitive balance. My paper tests this claim by developing an econometric model of competitive balance in Major League Baseball.
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