A Review of the Post-WWII Baseball Card Industry

If the attempt by The Upper Deck Company (Upper Deck) to purchase The Topps Company, Inc. (Topps) is successful, the baseball card industry will have come full circle in under 30 years. A legal ruling broke the Topps monopoly in the industry in 1981, but by 2007 the industry had experienced a boom and bust cycle1 that led to the entry and exit of a number of firms, numerous innovations, and changes in competitive practices. If successful, Upper Deck’s purchase of Topps will return the industry to a monopoly. The goal of this piece is to look at how secondary market forces have shaped primary market behavior in two ways. First, in the innovations produced as competition between manufacturers intensified. Second, in the change in how manufacturers competed. Traditional economic analysis assumes competition along one dimension, such as Cournot quantity competition or Bertrand price competition, with little consideration of whether or not the choice of competitive strategy changes. Thus, the focus will be on the suggested retail price (SRP) of cards as well as on the timing of product releases in the industry. Baseball cards have undergone dramatic changes in the past half century as the industry and the hobby have matured, but the last 20 years have provided a dramatic change in the types of products being produced. Prior to World War II, baseball cards were primarily used as premiums or advertising tools for tobacco and candy products. Information on the use of baseball cards as advertising tools in the tobacco and candy industries prior to World War II can be obtained from a number of different sources, including Kirk (1990) and most of the annual comprehensive baseball card price guides produced by Beckett publishing. A discussion of the early secondary market is discussed by George Vrechek and can be found in 7 installments of Sports Collector’s Digest (SCD) in 2004 and 2005.2 The baseball card industry is typically defined as the producers of nationally distributed picture cards of major league baseball players, licensed by Major League Baseball (MLB) and either the Major League Baseball Players Association (MLBPA) or the individual major league baseball players. Since firms must be granted licenses by MLB and the MLBPA to produce cards that appeal to collectors on a national basis, entry into the industry is regulated by those two entities. As for the general terms of the license, MLB has a standard royalty rate of 11% for national retail product licenses, as well as minimum annual guarantees which vary depending on the different product classification. The MLBPA has similar requirements. According to O’Shei (1997b), the MLBPA also has to approve the final product, and will oftentimes make suggestions to the manufacturers about the design and price of the product. Note that not all manufacturers secure licenses from both sources — one manufacturer, Michael Schechter Associates (MSA) has never acquired a national license from MLB. MSA has acquired licenses from the MLBPA, airbrushing any part of the team logos on the players’ uniforms that appear in the picture so as not to infringe on any of MLB’s trademarks. However, these cards are not fully embraced by consumers, in part because they tend to be regional issues and in part because they lack the MLB logo of the player’s team. Baseball cards are sold to consumers in retail outlets, such as Wal-Mart or Target, as well as in hobby shops. Card manufacturers are typically prohibited in their licensing agreements from selling directly to final consumers, so they sell cases of cards to the retail outlets, major hobby dealers, and wholesalers. Cases are comprised of a fixed number of boxes of cards, although the number of boxes varies depending on the