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Abstract
Brick and mortar gambling stakeholders have scrutinized Internet gambling sites over concern that online operators may serve as substitutes for their products. In some cases, this has led to regulatory protection to prevent or restrict entry by online providers. However, many industry observers have remarked that the two gambling modalities may serve different consumers/consumer needs, or even serve as complementary goods. Policymakers, who look to gambling as an important source of tax revenue, must determine how expansion of Internet gambling will affect overall economic welfare. Using self-reported consumer gambling behaviour data from the United Kingdom, the net effect of Internet-based gambling activity on land-based demand is estimated in this study. A robust complementary (positive) relationship between online and offline gambling is found, using ordinary least squares, two-stage least squares, and two-part modeling techniques. These particular findings suggest that economic concerns around the cannibalization of traditional gambling industries should be reconsidered, and provide support for prior research showing that Internet based firms can be complementary to brick and mortar businesses.
Acknowledgements
We wish to thank Terri-Lynn Mackay of the University of Nevada, Las Vegas, and David Paster of Oklahoma State University for their comments on an earlier version of this paper. All errors are our own.
Conflicts of Interest
None of the authors received direct funding for research related to this study. Each of the authors has received direct compensation for gambling related work from government, non-profit, and private organizations in the past.
Competing interests: The first author is employed by an organization that operates online and offline gambling.
Constraints on publishing
None of the authors received direct funding for research related to this study. Each of the authors has, in the past, received direct compensation for gambling related work from government, non-profit, and private organizations.
Notes
1. This proportional estimate of GGY does not include British bookmakers serving the population from an offshore licence, such as Gibraltar.
2. A-level education levels are approximately equivalent to secondary school, generally completed at ages 16–18.
3. The model describes a representative consumer, while the aggregate outcome is the sum of individual responses.
4. In gambling, reduced costs of consumption could be thought of as replacing the need to organize a home poker game with easy online access. This effect could also be thought of as reduced uncertainty costs with black market consumption (e.g. replacing private bookies). Finally, economies of scale from large online operations can also reduce price.
5. For example, the lowest denomination No Limit Hold'em poker game typically offered in a casino is USD $1/$2 blind stakes. Online, 92% of hands are played below this level, with 49% of hands played at USD $0.05/$0.10 blind stakes or less (Fiedler, Citation2012).
Additional information
Notes on contributors
Kahlil S. Philander
Kahlil Philander is the director of social responsibility at BCLC. His research interests include the economics of gambling, gambling policy and responsible gambling.
Brett L.L. Abarbanel
Brett L.L. Abarbanel is a research fellow at the UCLA Gambling Studies Program, where her expertise lies in human–computer interaction in online gambling, and global sociocultural and policy analysis.
Toni Repetti
Toni Repetti, PhD, is an assistant professor at the William F. Harrah College of Hotel Administration at the University of Nevada, Las Vegas. Her research interests are in managerial finance and gaming operations, with an emphasis on the effect gaming management decisions have on revenue and net income.