The Red Sox are currently in a unique economic position among MLB teams -- they sell out every game, which gives them pricing power to support the highest ticket and concession prices (by far). [I won't give you my related argument on why Manny Ramirez is the most valuable player in baseball history.] This in-park revenue is what allows them to compete in their division, which is generally the toughest. In 2006, all the tickets were sold, but there were a lot of empty seats in September.

To maintain the sellouts, they must always appear to be competitive. Because their rotation is weak (and a trade for good pitching almost out of the question), they HAVE to sign one of the three top starters available as a matter of credibility. Really good free agent starters are rare -- even small-market teams (Florida, Minnesota, Milwaukee) are tying up topflight pitchers with big contracts. They were going to "overpay" whatever they did, and the prices of Schmidt and Zito (the former has health issues, and I don't much like the latter) will be pushed up because it'll be an auction situation with only two options at first, and then one.

I don't think there is a clear-cut bottom-line business argument here, but I do believe that the circumstances cast light on how the front office and ownership came to make the decision.