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Multiple Equilibria and Unsustainable Runs in Major League Baseball: More Evidence

Rockerbie, Duane and Easton, Stephen (2021): Multiple Equilibria and Unsustainable Runs in Major League Baseball: More Evidence.

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Abstract

Teams that operate in professional sports leagues often display a cyclical pattern in team winning percentages that are driven by the payroll choices of owners that are inconsistent with a single, stable equilibrium. Two explanations emerge: a stable equilibrium that is shifting over time due to shifts of the revenue or payroll function; or moving between two stable equilibriums. We employ the Bounds test for cointegration between relative team revenues and payrolls to detect multiple equilibria in a sample of Major League Baseball teams over the 1990-2018 seasons. The results suggest the possibility of multiple equilibria for five teams even after accounting for moves to new stadiums that shift the team revenue function.

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