Interesting class in intermediate microecon today where after singing along to a 60's song and dressing up in school colors for chocolate, the class talked about monopsonies (yes, not monopolies who control output, but monopsonies, who control input). Everybody hates monopolies, not just because of the income/luxury tax associated with it and not being able to pass Go, but also because it is socially inefficient. Why? Monopolies essentially attempt to maximize profits by reducing output so that they can raise outputs. Imagine a rectangle where one side is quantity sold and the other is (Price - the cost to make it) so profit. By selling one less good, these monopolies can jack up the price on all the other ones sold, thus maximizing profits. So basically, society loses when they do that since less people get the good and the ones who do are paying more for it.
But have you ever heard of monopsonies? Doubtful unless you're an econ major, but they are the evil twin of monopolies. Instead of reducing output to increase the prices of their output, monopsonies decrease the amount of an input they hire in order to lower the price. This is the law of supply and demand where if the supply stays the same and demand drops, then the price of that object drops. Let's say the world's sole hirer of people with a particular skill: we'll say computer gaming for this example, is the executive team of Ford. Now, if 100 people are professional computer gamers then, they would turn to Ford for employment. Let's say Ford hires all 100 and gives them the ridiculous salaries that they hand out: $3million/person/year. But now that they're bankrupt, they must get rid of some of these professional minesweepers and solitaire specialists, so they hire only 10 people. This makes 100 people compete for 10 jobs, which means that the workers will bid down the wages in order to get a job. This also causes social inefficiencies since the people who the company are hiring at $50,000/person/year now bring we'll say $200,000/person/year to the company. So the company is EXPLOITING these workers. In a competitive market, these employees would receive how much they are worth to the company, but in a monopsony, they can deliberately reduce the amount of inputs they take so that they can exploit the workers who they do hire. Who would do such a dastardly thing? Turns out it's your very own NCAA.
The NCAA started as a regulation method for college football, where some players were actually dying from playing each year. However, they not only revised the rules on how the game was to be played and how hard a coach could push his players...they also changed the payments that players could receive for their talents. Players like Patrick Ewing were supposed to have brought $5million to Georgia when he played there for college. What did he receive? A free tuition. The NCAA mandates that players cannot be paid to play, which means that these highly valuable resources for the schools are giving up all the profits that they bring to the school...to the NCAA and the school. Who actually gets the money? Ever noticed the high paychecks of the coaches? Millions of dollars are spent on coaches, why? Because if you get a coach who can attract the best talent when everybody is offering next to nothing in payments, then your school's profits are greatly increased. Essentially, the players' contributions to the team are transferred to the coach.
But, it is not yet completely fair for the NCAA to be smite for their barbarous economic schemes. Many sports programs fail to bring in enough revenue to support their continuation. One example is swimming, where the maintenance of the pool and team is probably higher than the quantity of admissions (a lot) multiplied by the price of admission (nothing). The excess profits that the football coaches don't take go into programs such as this and keep it alive. But is this enough to justify the monopsony of NCAA's? Or should these college players be paid for their efforts, just as any other worker is for their valuable time and labor? And of course the biggest question: is it fair that swimmers make nothing...that pool is cold!?
Here's a list of my thoughts now that free agency has started.
After rumors that the closer market would be bare, there are many quality arms available. With many teams balking at the price of Francisco Rodriguez and Brian Fuentes, the demand for Trevor Hoffman and Kerry Wood will be high.
Speaking of Wood, I am still disappointed with the way that ended. I really believe that the failure of Zell and Tribune Co. to sell the team is hindering what the team and GM Jim Hendry can do. He basically told Wood that we could not afford a deal he deserves and instead traded top pitching prospect Jose Ceda to the Marlins for Kevin Gregg (who tied with the most blown saves last season). This was a terrible deal, not only because Wood is not the closer, but because this mean Carlos Marmol will be closing out games instead of setting up. Gregg can be effective, but the Cubs vastly overpaid for him. Jose Ceda is a top relief prospect, and more importantly he is under team control for the next 6 years. A 1-2 punch of Marmol and Ceda would have been dominant, this trade just baffles me. (/rant)
Other thoughts-
Will the Padres and Kevin Towers PLEASE FINALLY TRADE JAKE PEAVY. The rumors have been going on for the past two weeks with the Cubs and Braves seemingly minutes away from a deal, yet nothing ever materializes. Seems like no one has/is willing to give what the Padres want (a young shortstop, CF, and an elite pitching prospect). For those of that do not know much about Peavy, he is a former Cy Young winner and a real ace of a staff, although he has had some minor injuries over the last two years. Funny note about why the Padres are trying to shed payroll, their owner is going through a nasty divorce and is trying to get as much money as possible, it also doesn't help when the team completely fell on its face last year.
The Yankees are gonna outspend everyone. They'll get CC Sabathia after offering a historic contract and will probably get one more big time starting pitcher, especially since their owners think they are entitled to the WS championship. Plus, the CC contract will inflate all the other SP's demands (see Ryan Dempster asking for 5 years $75M).
The Matt Holliday trade was kinda surprising seeing that the A's were not competive last year, but Billy Beane is the best GM in baseball because of his ability to get a small market team to be contenders, plus he makes some pretty sweet trades. The A's gave up a really good CF prospect named Carlos Gonzalez (A's top prospect acc. to Baseball America), SP Greg Smith, and closer Huston Street. Gonzalez and Smith were acquired from the D'Backs in the Dan Haren deal from last year. The Rockies get a good looking out-fielder that they can move to LF once Dexter Fowler is ready. They get a decent/good SP in Smith and can use Street to fill the gap left by Fuentes.
If anybody has questions/thoughts I can help you out.
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