Free Agency and Organizational Rankings: A Social Comparison Perspective on Signaling Theory

Free agency connotes the freedom of an individual to choose whether or not they leave their home organization. We explore how options afforded to the free agent are influenced by the rankings and social comparison concerns between the home organization and outside organization. Probing free agency movement in Major League Baseball (MLB), Study 1 shows that free agents are less likely to move between highly ranked teams than between intermediately ranked teams. Studies 2 and 3 experimentally replicate these effects, showing that highly ranked home teams are more willing to retain their free agents with aggressive counter-offers when the outside offers are from other highly ranked teams, whereas intermediately ranked home teams are less willing to do so when outside offers are from other intermediately ranked teams. Study 3 additionally found that social comparison partially mediated the effect. Implications for free agency and the benefits (and sometimes costs) of having an outside offer are discussed.