Competitive Balance in Major League Baseball

Abstract

The purpose of this paper is to test several competing hypotheses of the causes of improving competitive balance in major league baseball. Various researchers have previously attributed this improvement in competitive balance to the introduction of free agency, a narrowing of team market sizes, and a compression of baseball talent. Two models of competitive balance are presented and estimated in this paper, with results varying depending on the measure of competitive balance employed. If the degree of competitive balance is measured by the distribution of team winning percentages within a single season, none of the competing hypotheses is supported. If competitive balance is measured by the correlation of team winning percentages across seasons, however, all three of the competing hypotheses are supported.