FINANCIAL RESTRAINT IN THE FREE AGENT LABOR-MARKET FOR MAJOR LEAGUE BASEBALL - PLAYERS LOOK AT STRIKE 3

In this study we examine the salary consequences of the baseball owners' boycott of the free agents market for players following the 1985 and 1986 seasons. In 1987 baseball arbitrator Thomas Roberts ruled that baseball team owners had violated baseball's Basic Agreement by colluding in the free agent market for baseball players. The owners, in an effort to exercise financial restraint, did not bid on eligible free agents after the 1985 season. In 1988 baseball arbitrator George Nicolau ruled that the owners once again boycotted the free agent market following the 1986 season. In this paper the salary consequences for affected free agents will be measured in an effort to estimate the economic consequences associated with the owners' financial restraint. The financial restraint hypothesis is that owners paid free agents lower salaries during the two collusion years than the players would have earned in the absence of collusion. Following a short discussion on the free agent market in section I, we introduce the Scully two equation model in section II to measure marginal revenue products (MRP) of players. In section III we provide the regression results and the salary/MRP comparisons before and after the alleged collusion. Our conclusions are presented in section IV. -from Authors