Monopsony and Competition: The Impact of Rival Leagues on Player Salaries During the Early Days of Baseball

Abstract

During the early days of professional baseball, the dominant major leagues imposed a “reserve clause” designed to limit player wages by restricting competition for labor. Entry into the market by rival leagues challenged the incumbent monopsony cartel’s ability to restrict compensation. Using a sample of player salaries from the first 40 years of the reserve clause (1880-1919), this study examines the impact of inter-league competition on player wages. Positive salary effects are observed during the twentieth century, but not during the nineteenth century. Structural differences in the competitive environments may explain differences in the effects between the two eras.