Case Scenario:
Just prior to the last round of negotiations with the Major League Player's Association, baseball commissioner Bud Selig broke open the books to show that major league baseball (MLB) had lost $1.4 billion during the previous 5 years. Worse yet, operating losses of more than $500 million per year on stagnant revenues of $3.5 billion were threatening to kill the game, according to Selig. Obviously, Congress and the players' union needed to rally around Selig's plan to reduce player salaries and allow him to get rid of the Montreal Expos and the Minnesota Twins. Local governments also needed to pony up for new and more elaborate stadiums.
Selig's ploy was nothing more than public posturing ahead of tough labor negotiations. MLB operates much like a corporation with 30 different regional offices (local franchises). Although individual clubs compete on the playing field, they aren't economic competitors. In a competitive market, one competitor's gain comes at the expense of others. In baseball, the success of one franchise brings increased prosperity for all. Through revenue sharing, all clubs prosper when Barry Bonds chases Hank Aaron's career home run record. When the Giants or the Yankees come to town, home team ticket sales soar. Ineptitude at one franchise weakens the profit picture for everyone.
MLB is clearly concerned about its poisoned collective bargaining environment. On the other side of the table is the MLPA. The players' association is a monopoly seller of baseball player talent, and the owners are a monopsony employer. The labor-market standoff in major league baseball is a classic confrontation between a powerful monopsony employer (the owners) and a powerful monopoly employee group (the players' association). Without a union, the owners would be able to drive player compensation down and earn monopsony rents. If owners were powerless, the players would be able to earn excessive salaries. Facing one another, they have to fight it out. It will be interesting to see who wins and if Selig is successful in getting the general public to pay more of the tab for escalating player salaries and ever more elaborate stadiums.
Question 1: How is the case described in this application related to the monopolistic market?
Question 2: Explain the difference between monopoly and monopsony.