Question

Explain how reserve-order entry drafts and the reserve clause create monopsony power for teams within a league.

Answer 1

In North American professional sports, after the entry draft, players initially are subject to the “reserve clause”, which states that player’s rights were retained by the team upon the expiration of contract. Under such contracts the players for a certain number of years were not permitted to enter into another contract with another team. A monopsony is described as a market control through which specific goods or services are purchased. The reserve-order entry drafts and the reserve clause results to a significant incentive to leagues and team owners as it allows them to create and maintain the power of monopsony over the players in the labor market to reduce the costs of labor