Real-life Case Study: Are Baseball Players Paid Too Much?

Supply and Demand

Major league baseball provides us with a prime example of the ways in which supply and demand affect wages. Millions of people are willing to buy tickets to watch major leaguers in person. Even more watch the games on television. Most team owners make enormous amounts of money from the sale of tickets and television rights, as well as licensing fees.

Baseball commissioner Bud Selig has presided over a 232-day players' strike that resulted in the cancellation of the World Series for the first time since 1904.

Supply and Demand The salaries of top baseball players are determined by supply and demand. The public creates a high demand for watching professional sports, but the supply of truly talented athletes is relatively small. This drives their salaries up. On the other hand, most people could be trained to work as store clerks or fast-food restaurant employees, so wages for those positions tend to be low.

Free Agency Up until the 1970s, players received relatively low salaries. This was because most were required to play only for the team that first signed them to a contract, or to the team that they had been traded to. In the mid-1970s, players went to court seeking the right to become “free agents.” Free agency would allow them, after playing for a team for a certain number of years, to sell their services to any other team willing to pay them the salaries they asked for. Although team owners strongly opposed free agency, the players won their case.

A Price to Pay This victory has led to bidding wars which have resulted in the astronomical salaries that top stars now receive. Yet, while these players have benefited greatly from free agency, both fans and major league baseball itself have had to pay a price. The intense loyalty that fans once demonstrated toward their favorite teams has diminished as players switch from one team to another in search of higher salaries. Owners have sharply increased ticket prices to afford the huge increases in players' salaries.

Now, only teams that operate in the largest television markets or have the wealthiest owners can afford to pay the best players. Some fans believe that only the richest teams can make it to the World Series, while the less-wealthy teams are left behind. The result of this development has been a growing cynicism on the part of many fans who feel—rightly or wrongly—that baseball championships are now purchased rather than won.

Applying Economic Ideas

1. What arguments might players make for free agency?
2. How do the laws of supply and demand affect baseball players' salaries?

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