Baseball Economics and Drive for Innovation
January 20, 2009 2 Comments
Aside: Well hello there, I’m a new writer here at StatSpeak. I’m a Jays fan with an interest in economics, so I started a little blog about it. Now I’m here to do economic style discourse about baseball. In spite of my soon to be completed advanced degree in mathematics I can’t pretend to know nearly as much about stats as my fellows here, so don’t expect much of that in my posts.
So I’ve been a pretty huge baseball nerd for a while now. It got so bad that I avoided taking evening lectures at the risk of missing any games my hometown Blue Jays were playing, and when I did attend I would be refreshing the score pretty often. So when I took Econ 101 I was at the same time following the game, so perhaps it was natural that I got the two pretty mixed up. When my prof would explain a concept I thought of an example of how it applied to the game. Surprisingly this lead to a good mark in the class and here we are.
One of the aspects of the game that has always fascinated me the most is how it was in essence the microcosm of an economy. You have thirty competing companies in the same industry who bid for the top employees and assets, who worry about P.R., and are constantly driving toward creating that monopoly – a dynasty in baseball parlance. Every team wishes for a string of successful years and there seems to be no shortage of strategies toward achieving this.
There are the Yankees who hope to buy up free agency and drive the cost of player contracts into the stratosphere (more on this eventually), the Rays who are a recent example of success through strong drafting, and the sabermetrically beloved As whose success rode the back of a better understanding of statistics. A successful team must have a strategy if they hope for continued success, to have a competitive advantage over their opponents. Money is a part of this but teams like the As and the Twins demonstrate that it is not always the most important part.
In economics there exists the idea of Creative Destruction, popularized by Schumpeter who argued that monopolies are created through powerful innovations. Innovations give the creator the ability to grab a significant market share because they simply do it better than their competitors. Look at Google who created a monopoly on Internet search engines by having the cheapest cost per search. But that is only the first part of the idea. The second is that while monopolies are created by innovations, they are also destroyed by superceding innovations which create new monopolies. So monopolies are created and destroyed by innovations, so the ability to create innovations are the greatest competitive advantage there is.
The interesting part of this is that the pace of this cycle of creation and destruction of monopolies is accelerating.
Right, back to baseball. If baseball is a microcosm for an economy then the same principle of creative destruction should apply. I think this is easily demonstrated. The Yankees of the late nineties and early 2000s were undoubtably the creme de la creme of the baseball world and are really what most people think of first when they think of baseball dynasties. They created a monopoly through innovation and their monopoly was destroyed by the superceding innovations of the Red Sox. As a guess, the Yankee dynasty lasted about 5 or 6 years. If we can believe that the Rays are as good as they demonstrated last year (which, as a Jays fan, I sure hope not) they could have superceded the previous Red Sox monopoly.
So if we can create an innovation in baseball as in business we can create a monopoly. The discussion of what constitutes a baseball innovation is more than I’m willing to write right now; first we will have to dissect the successes of the past to have a better appreciation of the innovations needed in the future. The easiest innovation to understand from the sabermetric point of view is, of course, the innovation of the Oakland Athletics, but more on that next time. Unless I start complaining about the idea of a salary cap first.
Until next time,