Monopsony power? Directory UMM :Data Elmu:jurnal:J-a:Journal of Economic Behavior And Organization:Vol44.Issue 2.Feb2001:
R.E. McCormick, R.D. Tollison J. of Economic Behavior Org. 44 2001 201–219 203
for some currently unknown reason, are not very responsive to wages paid in professional basketball?
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Why is this distinction important? If racial bias provides the explanation of the wage gap, then cultural shifts and education and integration of black people more completely into
the culture should reduce the wage gap as the tastes of racially biased fans recede. On the other hand, if fans are not biased, that is, they do not care about the skin color of players,
only that they play well and win, the wage gap persists as the society loses its racially segregated attitudes. If price discrimination is the basic reason why black NBA players earn
less than white players, the attitude of the fans is irrelevant. Indeed, the extent of the wage gap depends on the relative supply elasticities of black and white players.
This paper explores Kahn and Scherer’s results in search of a better understanding of this issue. We accept their result of a 20 percent salary differential. In an expanded sample of
NBA seasons, however, we find no evidence of general customer discrimination by NBA fans. To the contrary, if anything, there is a preference for more black players and more black
playing time in our results.
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However, there do appear to be patterns of racial composition across teams in the NBA. We start with the same empirical model as Kahn and Scherer, but
add two more seasons’ worth of attendance data.
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We identify a pattern of racial preference in NBA cities with large black populations. We also model playing time for NBA players
as a function of performance and race. Definitively, black players play more minutes than seemingly comparable white players.
In light of these results, we are left with the following: a a large salary differential between black and white players, b a weak basis for a claim of general customer dis-
crimination, and c more playing time for black players, all else equal. This pattern of results, in our view, is suggestive of price discrimination. NBA owners and executives are
engaging in price discrimination across classes of players who have different elasticities of supply. For whatever reason including past racial discrimination, black players have
a more unresponsive elasticity of supply with respect to providing professional basketball services than do comparable white players, and hence their salaries can be set lower without
erasing their supply of labor. The salary differential identified by Kahn and Scherer is most likely a result of this condition.
2. Monopsony power?
In order for the NBA to price discriminate between player inputs on any basis, the league must face an upward sloping supply curve of labor. We contend that the market for
professional basketball talent exhibits this characteristic. Moreover, the rules and institutions of the league must prevent internal competition among teams that would otherwise force
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When there are two different sources of labor in a market, if the elasticities of labor supply are sufficiently different and the supply of one source, the more elastic one, is larger than the relatively inelastic supply, then the
more inelastic workers will work more at lower wages.
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We augment Kahn and Scherer’s use of the number of white players per team with measures of actual playing time by season for white and black players.
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Their estimates covered the seasons from 1980−1981 through 1985−1986; ours cover the seasons from 1980−1981 through 1987−1988.
204 R.E. McCormick, R.D. Tollison J. of Economic Behavior Org. 44 2001 201–219
Table 1 Summary statistics
Variable n
Mean Median
S.D. Minimum
value Maximum
value Home attendance
184 464714
456628 136944
160537 1066505
Ticket price 157
11.37 11.00
2.59 7.00
18.50 Ratio of number of white
to number of black players 184
0.407 0.321
0.320 2.25
Ratio of total minutes played by whites to total
minutes played by blacks 184
0.351 0.252
0.325 2.24
Number of all-stars 184
1.011 1
0.986 4
individual owners to pay each player the value of his marginal product. We believe that the institutions of the NBA reveal just such a pattern over the time period at issue.
First, there is a draft of players out of the college ranks each year.
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This draft allocates the signing rights for each player chosen to one team for 1 year, thus eliminating any intra-league
competition during that year for incoming players. Starting with the 1976–1977 season and carrying through the 1981–1982 season, the collective bargaining agreement CBA
between the league and its players association allowed for limited free agency. The team bidding away a player had to pay compensation to the player’s team, plus the existing team
had the right of first refusal matching on any new contract. The CBA that went into effect for the 1982–1983 season maintained limited free agency for players. It eliminated the
compensation clause, but retained the right of first refusal. The 1987–1988 season began a new CBA which continued restricted free agency for a player’s first 4 years in the league,
and was followed by unrestricted competition among teams for a player’s services after a player had been in the league for 4 years or two contracts.
So even if certain players today face sufficient competition to avoid being discriminated against, the institutions in place for the period of our data, 1980–1988, are sufficient to
allow for the exploitation of differences in labor supply among classes of inputs. Until the data on current salaries are available, we cannot investigate whether the wage differential
between black and white players persists in this new era of intra-league competition for veteran talent.