25 October 2009

For sale: slightly worn balls

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.


Brandon Price says:

Major League Baseball is one of the most lucrative businesses of all time. Many of the world’s highest paid athletes are among those competing in the MLB. Several teams such as the New York Yankees have payrolls well over $100 million. My main focus however is not any one team, but rather the Rawlings Company. With the help of Major League Baseball Rawlings now holds an oligopoly in the field of sports equipment. Some say that Rawlings can be considered to be a monopolistic corporation.

The main piece of equipment that gives Rawlings a monopoly is the actual “Official Major League” baseballs. There are 162 games in the regular MLB season, and the number of baseballs used is quite staggering. In one season, the average number of baseballs used is 160,000. This equates to more or less 65 balls per game. The average life-span of a major league baseball is 7 pitches. After that it is no longer used in a game. 160,000 is an absurd amount of baseballs used, especially when one game could be played with a maximum of 5 baseballs.

Because of their massive contract with the MLB and with the number of baseballs used every season, Rawlings must continue to mass produce baseballs every year. This is no problem for Rawlings because their plant is located in Costa Rica and wages are extremely low. The marginal cost of producing a baseball is very small, but this does not stop Rawlings for selling the balls at an increased price. The average cost of an official major league baseball here in the United States is $14.00. The cost to produce that one same ball is well below $1.00. As a baseball player myself I believe it is outrageous to pay $14.00 for a 5 ounce ball. The Rawlings baseball has become the staple of America’s pastime and this has been made possible by the MLB.

A baseball is just a baseball, but as soon as it says “official major league baseball” the value of it increases ten-fold. As can be seen though, the price of official major league baseballs is inelastic for the majority of people. It is unnecessary to produce that many baseballs. The average life of a baseball should be considerably greater than 7 pitches. Rawlings has the ability to continue to extract cork and leather resources to continue producing baseballs, but when is enough enough? No other baseball manufacturer will ever be able to crack into the market because
  1. They cannot produce a baseball for cheaper and
  2. Rawlings continues to have an ongoing contract with not only MLB but also the even larger minor league baseball system and this contract increases demand for the same type of
    baseballs that the professionals play with.
Bottom Line: Major League Baseball has allowed the Rawlings Company to become a monopoly in the market for baseballs giving them the power to inflate the price of an extremely inexpensive good.

3 comments:

Eric said...

Sounds like there is an opening for a new baseball producing company.

David Zetland said...

@Eric -- you miss the point (the monopoly from "official"...)

Eric said...

I did not miss it. I just chose to ignore it in a short comment. ;-)

I assumed that there could be a work around for a motivated company.