E. Woodrow Eckard

Are Mega-Mergers Anticompetitive? Evidence from the First Great Merger Wave

In the first time-event analysis of the great merger wave of 1897-1903, we find that the consolidations created value for merger participants of 12% to 18%. We next find that the competitors suffered significant value losses inconsistent with conventional monopoly behavior (i.e., trust-induced output reductions and price increases). This result might be explained by apprehensions of trust predation rather than expected efficiency, but further analysis suggests that this is unlikely. Revelation of trust membership or prior stock market mispricing are also unlikely alternative explanations. On balance, therefore, the evidence indicates that these mergers were generally motivated by more efficient operations, rather than monopoly power.

Baseball’s Blue Ribbon Economic Report Solutions in Search of a Problem

In July 2000, Major League Baseball published a report claiming a recent marked decline in competitive balance. The alleged cause is growing disparities in team revenues and payrolls driven ultimately by market size. Consequently, sweeping changes in the game’s economic structure are necessary, mainly composed of new labor market restrictions. The report, however, fails to present evidence of a decline in competitive balance or of a significant link between market size and winning. The present study seeks to provide the missing analysis. Although competitive balance might have declined in the American League (AL), it improved in the National League (NL). The difference is important, as both leagues are subject to the same governance structure—that is, the AL decline is likely due to idiosyncratic causes. Also, there is (at most) a weak relation between winning and market size that has not worsened in recent years.

Comment: "Professional Team Sports Are Only a Game: The Walrasian Fixed-Supply Conjecture Model, Contest-Nash Equilibrium, and the Invariance Principle"

In a recent article in this journal, Stefan Szymanski develops a generalized version of the two-team diminishing marginal revenue model of win percentage determination and talent allocation. The standard version of this model assumes a fixed supply of talent for a given season, focusing on the allocation of players among teams. Szymanski claims that this assumption is inappropriate and offers his generalized model as a solution. This comment argues, on the contrary, that the fixed supply assumption underlying the standard model is appropriate for its usual applications, given the “peculiar economics” of sports labor markets.

The Origin of the Reserve Clause: Owner Collusion versus 'Public Interest'

This article examines the creation of the first professional athletic labor market restriction over a century ago. In 1879, professional baseball club owners mutually agreed that each could reserve five players whom the others would not sign without permission, justifying the action by claiming that it was in the “public interest,” that is, necessary to preserve the game in the face of various alleged problems. Analysis of the relevant data reveals that these problems were either nonexistent or easily solved within the game’s existing rule structure. Given the lack of support for the public interest arguments proffered by owners, the more likely motive for the reserve rule was monopsonistic collusion.

A note on the profit—concentration relation

The efficiency view of the well-known industrial concentration–profits relation postulates that efficient firms achieve both high market share and high profits, incidentally creating a positive correlation between concentration and profit levels. A necessary implication is a positive relation between share and profit changesfor all firms, large and small. This hypothesis is tested using five size-ranked cohorts of firms in four-digit US manufacturing industries. A positive correlation is found between shart and profit change for all cohorts, consistent with the efficiency hypothesis.

Plant-level scale economies and industrial concentration

Abstract The importance of plant scale economies as a determinant of concentration differences among industries is examined using four-digit SIC data. Inter-industry concentration differences are explained by corresponding differences in leading firm plant size (relative to industry), rather than by the number of plants operated. Similarly, changes in industrial concentration are more directly related to plant size changes than to changes in the number of plants operated. This suggests that plant-level scale economies are more important than firm-level economies or other types of efficiencies in determining concentration differences among industries.

The Uncertainty-of-Outcome Hypothesis and the Industrial Organization of Sports Leagues

The uncertainty-of-outcome hypothesis (UOH) posits that sports fans value competitive contests, implying that competitive imbalance within a league will motivate stronger teams to leave. Testable hypotheses can be formulated utilizing the many college football conference realignments over the last century. The results support the UOH. For example, schools leaving an existing conference to form a new major conference, or join a preexisting one, were on average stronger than their former associates in the years before their departure. Also, the number of seed conference championships won by departing schools generally exceeded their “fair share” under an equal-likelihood assumption.

Cost competition: new evidence on an old issue

The relation between cost changes and market share changes is examined for five size ranked cohorts of firms in US manufacturing industries. Cost reductions are expected to yield market share increases via associated price reductions. It was found that this is indeed the case, although the realation is not strong. A 10% cost reduction produces roughly a 2% market share increase, an estimated which for various reason is most likely a lower bound. Cost reductions are also associated with both price reductions and price-cost margin increases.

Do Colleges Get What They Pay For? Evidence on Football Coach Pay and Team Performance

We use a data set of Football Bowl Subdivision (Division-IA) universities to investigate the hypothesis that higher coach pay leads to improved team performance. Our analysis finds that pay and team performance are positively correlated and that, when schools change coaches, higher pay is associated with improved performance. The evidence suggests that additional rating points are increasingly valuable, perhaps over US

Is the Bowl Championship Series a Cartel? Some Evidence

1 million for top teams. Our descriptive analysis reveals the median 2011 head coach pay of US