Enjoyed the informative article. I am not a big hockey fan, but I think the comparison between MLB and NHL salary arbitration is interesting. In hockey, the arbitration panel has the authority to select compensation at any point between the two sides, not merely one extreme or the other. Also, there, the arbitrator(s) can choose the length of the contract and is not limited to a one year agreement.

A few nit picks regarding Eugene's excellent work:

Since the service time arbitration eligibles are still subject to the reserve clause and can only negotiate with one team, those teams must tender a contract offer to the player on or before the third Friday in December. The player then has until mid-January to negotiate with his team. By mid-January the player has to choose whether or not to accept arbitration. If a player in this category has not been tendered a contract by the late-December deadline he becomes a free agent.

I think this is not exactly correct. Super Two's through 5 year service time can negotiate with his team up to and including the arbitration hearing in February. Likewise, in most senses, those players don't have a choice, by mid January or any other time, of accepting arbitration: they can either accept arbitration, accept the unilateral salary offer from the club, or go to work at Shoney's.

What makes baseball salary arbitration different from traditional arbitration in the labor-management setting, or any setting for that matter, is that it is what is called final offer arbitration.

Final offer arbitration is indeed unusual, but it is not exclusive to baseball. Not to turn this into a Labor Law Primer, but there are many (although far from a majority) situations in Interest Arbitration (as opposed to Rights Arbitration) in which Final Offer is the method of choice.

Nice work. A well-written piece that explains and demonstrates the success of baseball's salary arbitration process.

As to whether arbitration is inflationary, it is neither inflationary nor deflationary. Decisions and pre-arbitration settlements typically reflect the market at a moment in time.

So-called "bad" contracts (those deemed excessive in retrospect) are offset by so-called "good" contracts (those where players sign below market value for whatever reason.

Lunar,

Eugene touches on it in the 7th (I think) paragraph above. The CBA provides that any FA may have his salary determined through arbitration if (1) the team for whom he most recently played offers arbitration and (2) he accepts. The specific language is found in Article VI(F)(1). Paraphrasing the legalisms, ALL players may go through arbitration IF the team agrees; plus players with 3-5 years service (and the Super Twos) can unilaterally chose arbitration with the club's only option to terminate the player's services (i.e. non tender).

1) Can someone explain the 17% thing further? 2) Not mentioned in the article, but can someone explain exactly what a Super Two is, and how their arbitration schedule is different from a regular player?

Super Twos are players with two years plus of service time and eligibility for arbitration. The top 17% of players (based upon service time) with two years of service are eligible for arbitration.

3) Can a player really decline arbitration before years 4 and 5? I don't think I've ever seen this happen. I know they can prior to year 6, and many times they won't even be offered. Can a club not offer and a player not accept in years 4/5?

I may have been unclear with this part. A player can decline if he chooses to resign prior to accepting arbitration or prior to hearing. Otherwise, arbitration is the only option.

monopsony a market with only one buyer.
During a players reserve years there is only one buyer for the player's services, thus it is a monopsony market.

RMB,

You should check out Doug Pappas' site, roadsidephotos.com. He has a business of baseball section that includes submissions for the entire history of salary arbitration.