Major League Baseball

Abstract

This article presents evidence that team owners in Major League Baseball (MLB) set ticket prices as profit-maximizing monopolists. However, the evidence also indicates that the cost of other forms of entertainment affects the demand for baseball tickets as economic theory would predict. The interpretation is that team owners face negatively sloped demand curves for baseball tickets but they must compete for the consumer’s entertainment dollar in a broader market for entertainment services. The recent change in MLB’s territorial restrictions also had some impact on ticket pricing. The impact, however, is inconsistent with the hypothesis that it enhanced the team owners’ market power. Instead, the evidence is consistent with the hypothesis that the change increased the demand for baseball tickets. One plausible explanation is that it provided greater incentive for individual team owners to promote their teams against other forms of entertainment. This argument merits additional consideration in future research and may provide some insight into how nonprice vertical restraints in other markets affect economic performance.