With an obscure Topps baseball card, a University of Maryland professor has shown that the theory of this year's Nobel prize winner in economics may actually have one too many players on base.

Using sports cards shows as his laboratory, John List, a Maryland economics professor, found that only half of the competitive market findings of Vernon Smith, the American who will receive the Nobel Prize on Dec. 10, needs to be present to predict how well competitive markets actually work.

His findings are described in an experimental pilot study published in the November "Proceedings of the National Academies of Science."

"One of Vernon Smith's many seminal findings that led to the Nobel Prize was that a competitive market works when you have two constraints," said List, who was a colleague of Smith's at the University of Arizona. "One is open outcry of bids during trading, like they do on the floor of many stock exchanges. The other is allowing participants to learn in the market.

"My results show that competitive market theory predicts well with only experienced buyers and sellers. When buyers and sellers are both knowledgeable, competition is strong. Open outcry isn't needed."

The key to List's findings was examining behavior of people who are already involved in the sports card market. "They have selected into their roles as buyers and sellers and have different levels of expertise," said List. "As far as I know, this sort of analysis is new to economics research and provides fresh insights into the nature of the competitive market."

Understanding what drives the competitive market is important, for one thing, in deciding whether government should intervene in the marketplace, says List. "My goal is to further our understanding of how and why markets work and to better predict when they will fail. And, how do we design new markets, like electricity deregulation, for example?"

List decided to test Smith's theory with a market he knows well, his longtime passion of sports cards. "I earned my way through undergraduate school at the University of Wisconsin-Stevens Point, in part, by selling sports cards."

A favorite way for sports card buyers and sellers to do business is at weekend shows. Dealers, sometimes a hundred or more, set up tables in a rented space. Buyers stroll the floor, looking through the collections of cards of athletes from every era and almost every professional sport. Buyers and sellers often negotiate prices one-on-one. There is no open outcry.

"Smith tested his theory in a classroom, with students calling out buy and sell figures while the monitor ordered them on the blackboard," said List. "As they called out prices, the students were mentally gathering knowledge about the market as the market progressed.

"After such an experimental examination, which is necessary to testbed and obtain insights in controlled settings, the obvious next step is to go to the marketplace itself. This is what our theories purport to predict."

List went to organized shows and also set up some of his own, in several locations around the country, over the past several years. At each show, he distributed 12 copies of the same baseball card to sellers who agreed to take part in his experiment.

The card was a 1982 card of Milwaukee Brewers right fielder Ben Oglivie, a pretty good homerun hitter in his own right, but not a big draw in the sports card market. To make the card totally worthless on the real market, List drew a moustache on each of the 12 Oglivie cards.

List then recruited buyers to purchase the Oglivie card from the dealers. To assess how much they knew about buying sports cards, he asked them to fill out a questionnaire.

"I have obtained information from more than 500 people," List said. "Each buyer brought a different level of knowledge. Some came in with 15 years of experience buying sports cards, others with only one or two years. This variation in consumer experience permits a stark test of the role of experience in market outcomes."

List constructed his own supply and demand curves for the mustachioed cards, establishing the card's worth for buyers and sellers. He assigned a different value for the card to each buyer and seller, then told them to bargain for the cards as they normally would. They could keep any profit they made by buying under, or selling over, their unique values.

List found that the most experienced buyers and sellers in the sports card market made the most money on the Oglivie card. "Those more knowledgeable about the bargaining process in the marketplace in general performed better."

List, who also is serving this year as a senior economist on the President's Council of Economic Advisers, remains an avid sports card collector and still does an occasional sports card show to stay in tune with the marketplace. "If you want to gain real economic insights from field studies, a firm understanding of the marketplace is necessary," List said.

A baseball fan from his childhood days growing up in Wisconsin, List's allegiance has shifted from his hometown Brewers to the Orioles, "because of Cal Ripken, Jr.," he says.

List managed to see most of this year's World Series, even though he was half way around the world. "I was in India, helping to negotiate aspects of implementing the rules of the Kyoto Protocol, and the games came on around 5:30 a.m. I would watch as I prepared for the day's negotiations."

His view about the economics of real life baseball? "With the big salaries, the big money concentrated in a few clubs, it's not the same as when I was a youngster. I was glad to see different teams in the Series this year."

Register for reporter access to contact details

PNAS, Nov-2002 (Nov-2002)