<p>Flood Vs Kuhn et al.</p><p>Facts of the Case: Curtis Flood, a former Major League baseball player, was traded to the Philadelphia Phillies in October of 1969 without being notified nor was he allowed to negotiate a contact to play for another team. Flood believes that the reserve system was “thrust upon the players by the owners” and that players’ unions did not have adequate time to deal with this system. This once again stirs the question of whether professional baseball should be considered in violation of antitrust laws due to the concept of the League’s monopoly over its baseball players and its ability to trade these players as they see fit.</p><p>Remedy Sought: The plaintiff believes that the reserve system is a labor violation and feels that he should receive “declaratory and injunctive relief and treble damages” for his inability to play baseball for a season.</p><p>Court Opinion: This antirust suit was first filed against Major League baseball in January of 1970 in New</p><p>York. In this case, Flood argued against the reserve clause and the ability of the league to own player rights. The argument against Flood’s case was that the reserve clause allowed for all players to be treated with some deal of equality within the club. The reserve clause was instated in order to benefit both players as well as clubs alike and sought to spread various skilled players in order to create more fair teams. The trial court came to the decision that Major League baseball did not infringe on any labor rights or antitrust laws by instating the reserve system and, in fact, it proved to give more diversification of teams within the sport.</p><p>1 In the Second Circuit trial court, the appellate judge agreed with the Trial Court’s opinion. The presiding judge, Judge Moore, added his opinion that regarding any proposed overruling of the Federal Baseball and Toolson, cases that “there is no likelihood that such an event will occur.” It was his conclusion that the common clause was to supercede that of the issue of state law.</p><p>In the Supreme Court, Judge Blackmun, agreed with the appellate court’s ruling. It stated that the defendants who are involved in a professional baseball league are participating in that of a business of interstate commerce. Blackmun concurred due to a number of factors: 1) fans come from across state borders to see games and buy tickets, 2) the teams travel across state borders and engage in commerce, 3) the merchandise sold travels over state borders. The reserve system used in baseball player’s contracts is a variance that is considered to be exempt from the federal antitrust laws. This precedent was established in Toolson v New York Yankees and the</p><p>Baseball Club case. Most importantly, the Supreme Court pointed out that “since 1922 baseball, with full and continuing congressional awareness, has been allowed to develop and to expand unhindered by federal legislative action.” The decision of both the trial and appellate courts has been upheld.</p><p>Economic Analysis</p><p>There are two outcomes that can occur from this case. However the courts decide will eventually lead to the same equilibrium. If the Supreme Court assigns property rights to player contracts ruling in favor of the reserve clause and assigns the rights to team owners, the equilibrium outcome of a world in which owners bargain with each other over players will be the same if players freely bargain with owners. According to the Coase Theorem, if transaction costs are zero, if, in other words, any agreement that is in the mutual benefit of the parties </p><p>2 concerned gets made, then any initial definition of property rights leads to an efficient outcome. </p><p>It doesn’t matter who has the right to bargain over the players, in the end, the team that values the player the most will be willing to give up its resources in order to obtain that player. </p><p>Therefore, using the Edgeworth Box diagram, when the reserve clause is in effect, you see that income is on the y-axis, and demand for player’s skills is on the x-axis. At the origin is team one, and on the opposite side, team two. At point A, if team one has little demand for Babe </p><p>Ruth’s skills, then it will have a higher income to use for other purposes. Therefore, if team two has a large demand for Babe Ruth, then they are willing to substitute more income for Babe </p><p>Ruth. Team two’s marginal rate of substitution was steeper for acquiring Babe Ruth’s skills therefore; they ended up receiving him as a player. The marginal benefit goes to the team that values Babe Ruth’s skills the most, indicated by the amount that the team is willing to give up in terms of income used for other purposes. </p><p>On the other hand if the Supreme Court were to rule that the reserve clause was, in fact, illegal the situation would not change very much. The Coase theorem still applies such that: if transactions costs are zero then an efficient outcome will be reached by bargaining between both parties. The market for players will shift very little. The difference that occurs without the reserve clause in place is the fact that the team’s are now forced to compete with each other for the player’s skills and must negotiate directly with players. Due to this change, efficiency can still be reached, however the team’s willingness to pay for each player’s skills will become greater. Due to the newly created free agent concept where players can bargain directly with teams, the teams must be willing to spend a larger portion of their income to gain each additional unit of the player’s skills. Through the use of an Edgeworth box diagram we can depict the difference the lack of a reserve clause creates. The parameters of the diagram are the</p><p>3 same as the previous diagram that showed the outcome with the reserve clause. The difference that is depicted is the change in the Marginal Rate of Substitution. As previously explained a lack of a reserve clause will cause a steeper MRS due to the fact that teams must be willing to give up more income at a time for each additional unit of player’s skills that is acquired. Because there is more competition in the market, with the elimination of the reserve clause, in order to capture the same amount of utility in terms of player’s skills, each team will be forced to spend more of their income per unit. Thus the MRS becomes steeper. If there is no reserve clause the</p><p>MRS will change, however an efficient outcome can still be reached, due to the concept of the</p><p>Coase Theorem.</p><p>The effects of a reserve clause or no-reserve clause are also similar to the effects that occur in a labor migration model that is responding to wages, assuming transactions costs are zero. In this case, we use a model that shows two teams on separate graphs, with wages on the vertical axis, and labor on the horizontal axis. With a reserve clause there is an initial wage for each team with an initial supply of player, which may be different from team to team. With the reserve clause the teams are able to set the wage and decide where to place the players, because they have control over the supply: due to the fact that the owners own the rights to the players’ contracts. Without the reserve clause, players are able to migrate between teams for freely; therefore the wages must adjust appropriately to account for more demand for one team over another. Eventually the wages and supply of players will adjust to create equilibrium. For example (without the reserve clause): suppose team 2 is offering a lower wage than team 1. Due to the wage differential players from team 2 migrate to team 1; as a result there is a reduction in team 2’s supply of players, and an increase in team 1’s labor supply. Consequently, the increase in supply in players to team 1 will cause the wage on team 1 to drop, while at the same time the </p><p>4 decrease of supply of players for team two will cause an increase in the wage: thus creating equilibrium between the two teams. </p><p>5</p>