Abstract
This article examines the impact of hometown market size on competitive balance in Major League Baseball. We use a four‐equation simultaneous model of win percent, team payroll, team total revenue, and team local revenue in order to avoid simultaneity bias in the estimates. Using two‐stage least squares, our results show that consolidated metropolitan statistical area population does have a statistically significant positive impact on local revenue. This leads to increased payroll, which has a significantly positive, but small, impact on win percent. Specifically, the estimated impact of an additional one million in population ranges from 0.233 to 1.126 additional wins per season. (JEL L38)
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