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THE ECONOMICS OF MAJOR LEAGUE BASEBALL Jonathan Flickinger Nicole Erwin Shannon Kane Jen Pergola Economics of Major League Baseball Jonathan : Defining the market, Supply and Demand, Goals and Constraints Nicole : Substitutes and Preferences Shannon : Utility, Income, and Price

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the economics of major league baseball

THE ECONOMICS OF MAJOR LEAGUE BASEBALL

Jonathan Flickinger

Nicole Erwin

Shannon Kane

Jen Pergola

economics of major league baseball
Economics of Major League Baseball
  • Jonathan: Defining the market, Supply and Demand, Goals and Constraints
  • Nicole: Substitutes and Preferences
  • Shannon: Utility, Income, and Price
  • Jen: Monopolistic Activity
  • Jonathan: Conclusion
defining the market
Defining the Market

•30 Major League Baseball teams

•Each team has their own stadium/dome

•Each team consists of 18-22 players

•Coaches, Personnel, etc.

•Teams spread across the US and Canada

supply and demand
Supply and Demand

• 30 Major League Teams

• 162 games a season

goals and constraints
Goals and Constraints
  • Substitutes
  • Preferences
  • Utility
  • Changes in Income, Price
substitutes

Substitutes

A good that can be used in place of some other good and that fulfills more or less the same purpose

substitutes7
Substitutes

• Minor League baseball

• College baseball

• High School baseball

• Recreational/Youth baseball

effect of substitutes
Effect of Substitutes

• Most people prefer major league baseball

• Entertainment purposes

• Location

• Price

substitution effect
Substitution Effect
  • As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed.
preferences
Preferences
  • When something is preferred or else things would be valued equally
preferences in baseball
Preferences in Baseball
  • People are going to have a team preference
  • Typically, the hometown team.
  • Winning teams have long term fans
  • Winning means fans typically will attend more games
consumer decision making
Consumer Decision Making
  • The consumer will always choose a point on the budget line rather than a point on or below the line.
major league baseball
Major League Baseball
  • Major League vs. Minor League
  • Lowest price: $9 vs. $4
  • Highest price: $35 vs. $11
comparable prices
Comparable prices
  • Major League vs. other substitutes
  • College baseball tickets are free
  • High School Baseball is free
  • Youth baseball is free
  • Tickets may cost consumer money during playoffs, world series, etc.
budget constraint

Budget Constraint

The different combinations of goods a consumer can afford with a limited budget, at given prices.

utility
UTILITY
  • Pleasure or satisfaction obtained from consuming goods and services.
utility in major league baseball
Utility in Major League Baseball
  • Large television/radio coverage
  • Opportunity for advertising/sponsorship
large tv radio coverage
Large TV/Radio Coverage
  • Fox Sports Net covers the games on television.
  • ESPN Radio carries the game on their station.
  • If you miss the game, catch the highlights on Sportscenter.
opportunity for advertising sponsorship
Opportunity for Advertising/Sponsorship

• Restaurants within the ballpark

  • Quaker Steak & Lube, Primanti Bros., and Manny’s BBQ in center field

• Between Innings: t-shirt toss & mullet moments

• Special Promotions: Fireworks & Bobbleheads

example
Example
  • The Pittsburgh Pirates spent:
    • 7.6 million dollars on signage
    • 2.2 million dollars on promotions
    • 3.1 million on radio
          • Information taken from Pittsburgh Pirates ticket office
what does this mean
What does this mean?
  • It means that when you are at a Pittsburgh Pirates game, the sights and sounds in the ballpark cost money.
  • The team spends this money to ensure that every paying individual gets the satisfaction they are looking for when they purchase their ticket.
  • Hence, the team is ensuring utility.
income and price

INCOME AND PRICE

Income: the amount that a person or firm earns over a particular period.

Price: the amount of money that must be paid to a seller to obtain a good or service

interesting fact
Interesting Fact
  • The Pittsburgh Pirates have spent the following amount on players salaries:
    • 2000: 29.6 million dollars
    • 2001: 57.8 million dollars
    • 2002: 42.3 million dollars
alex rodriguez
Alex Rodriguez
  • $262 million over 10 years
  • Translates into $26.2 million per year
  • Meaning, the Pittsburgh Pirates team payroll almost equals his salary.
monopoly
Monopoly
  • One seller of a product with no close substitutes
  • Large capital requirements
  • Economies of scale
flood vs kuhn 1972
Flood Vs. Kuhn (1972)
  • Curtis Flood was a Major League Baseball Player who signed a contract with the Cincinnati Reds in 1956. He later went to the St. Louis Cardinals.
  • In October 1969, he was traded, without consultation, to the Philadelphia Phillies.
  • He petitioned the Commissioner of Baseball to be a free agent, but his request was denied.
resulting action
Resulting Action
  • Flood files anti-trust suit against the Commissioner of Baseball, Bowie Kuhn, along with the presidents/owners of each individual league and organization.
so why is mlb a monopoly
So why is MLB a monopoly?
  • The opinion of the Supreme Court favored Flood, and in the process, said MLB was exempt from anti-trust laws.
  • So, Major League Baseball is a recognized exemption to the anti-trust laws, and only Congress can change it through legislation.
so what can major league baseball do from a monopolistic standpoint
So what can Major League Baseball do from a monopolistic standpoint?
  • Price discrimination
  • Profit Maximization
price discrimination
Price discrimination
  • Charging different prices to different customers for reasons other than differences in cost.
  • How does price discrimination occur?
example of discrimination
Example of Discrimination
  • Pittsburgh Pirates vs. New York Yankees
  • Buying a ticket to this game in New York is going to cost you much more than seeing this game in Pittsburgh.
  • This leads to Profit Maximization.
profit maximization
Profit Maximization
  • When you maximize your profits in any given fiscal year.
  • Profit is equal to Total Revenue minus Total Cost.
  • Revenue is the total inflow from selling a given output.
  • Cost equals fixed cost plus variable cost.
conclusion
CONCLUSION
  • Major League Baseball has a broad market that incorporates many areas of economics.
  • While your sitting there enjoying the game, you might not think about economics.
  • However, economics is at the heart of our national pastime.
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