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This article argues that the 1976 introduction of free agency increased competitive balance in Major League Baseball. The evidence is based on a new empirical measure that captures the key dynamic element of balance: year‐to‐year fluctuations in team performance. My hypothesis is that diminishing returns to each additional year's “production” of a pennant‐contending team reduces the incentive to bid continually for top players. Free agency allows talent to be reallocated more readily to potential new contenders, given that player sales had been restricted prior to 1976. The hypothesis is supported by evidence of declining attendance during contending “streaks.”

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The 1970 ban on telmision advertising for cigarettes constitutes a quasi-experiment allowing the efect of advertising on competition to be evaluated. Assuming the ban reduced the eflcacy of industry advertising, an analysis of various proxies for competition before and after the ban enables one to deduce whether advertising promotes or limits competition among cigarettefirms. The results indicate that in this case the restriction of advertising reduced competition. * Associate Professor, Graduate School of Business Administration, University of Colorado at Denver. I have received helpful comments from Rich Foster, Sue Keaveney, and two anonymous referees. Remaining errors are my own. I would also like to thank the Graduate School of Business Administration, University of Colorado at Denver, for financial support, 1. See Scherer [1980], Comanor and Wilson [1979], and Eckard [1987; 19881 for reviews of these studies. Economic Inquiry Vol. XXR, J~U~I Y 1991,119-133 4. The difference between mean advertising-tosales ratios for 1963-70 and 1971-75 is statistically significant at the 1 percent level.