Question

A reserve clause binds a professional athlete to a sports franchise even if the player does not have a contract with the team that retains the rights to the player. In other words, the player can only play for a single team and other teams may not bid for the player's services even in the absence of a contract. Major League Baseball was forced to outlaw reserve clauses in 1975. As a result of the ban, we would expect that

Answer 1

Answer: D. players in the major leagues would be paid more than their marginal product.

Explanation:

When the reserve clause was in effect, a team that had the rights to a player could pay the player what they wanted or at least according to their marginal product depending on how good they were without having to worry about other teams offering more money to the player because they could just decide not to let the player go.

When this clause was removed, this changed. Other teams could bid for players so bidding wars allowed major league players to make more money from either their team which would be forced to increase their salaries, or from other teams who would entice the players to move with higher salaries. This led to major league players being paid more than their marginal product.