The focus of this research explores the affects that revenue sharing and the luxury tax have on competitive balance in Major League Baseball. The issue of competitive imbalance has been impacting Major League Baseball for several decades, negatively affecting profits from the league perspective. Due to predicable game outcomes, large market teams dominating small market teams, the fans are uninterested, decreasing league interest. With the use of three different microeconomic models, cartel theory, production function theory, and a two team game model, the research will investigate the proposed affects of these regulations on competitive balance. Fixing the issue of competitive imbalance will allow the MLB to reach higher league profits, by allowing small market teams to have a higher opportunity of reaching post-season play. Using the framework of the microeconomic theories and the review of past literature, an empirical model was constructed, based on team output, wins, using data from MLB sources to test the hypothesis: That revenue sharing and the luxury have a negative or no impact on competitive balance in Major League Baseball. The ultimate goal of this study is to evaluate if the revenue sharing and luxury tax implications are impacting competitive balance, in the manner proposed by Major League Baseball.


Burnell, James


Business Economics


Sports Management


Revenue Sharing, Luxury Tax, Competitive Balance, Major League Baseball

Publication Date


Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis



© Copyright 2014 Zachary J. Klein