Player Salaries, Organizational Efficiency, and Competitiveness in Major League Baseball

The dramatic growth of free agency in Major League Baseball has caused great concern about the competitiveness of some teams, particularly those in smaller markets. The authors use a two-stage data envelopment analysis model as part of a larger analysis to determine the minimum total player salary required to be competitive in each nonstrike year since 1985. They then examine trends in this salary and determine how many teams were noncompetitive each year because of low total player salary. Finally, they examine the relationship between competitiveness and market size. The authors find evidence that the number of times that a team has been noncompetitive because of low total player salary between 1985 and 2002 is negatively related to the size of the market in which it plays. The authors also find that large market teams are more likely to overspend on player salaries than are small market teams.