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Competitive gambling market in EU

In an unconstrained competitive free market, the presence of excess profits acts as an inducement for new competitors to enter the market, and offer comparable services at better terms in order to capture a share of the market. Applied to gambling services, the resulting increase in supply would reduce the extent of economic rents available for suppliers and other beneficiaries. However, it would also create various economic benefits for consumers, including lower prices, a greater variety of product and service choices, and a more dynamic and responsive marketplace. Because of the constrained and protected nature of most of the EU’s gambling services industries – specifically because of the constraints and prohibitions on the gambling services industries themselves, as well as the limitations on organizations or entities that are authorized to provide such services – this typical free market response process is thwarted;

If such competitive market processes were allowed to occur (for whatever reason), it is likely that the aggregate demand for gambling services within the European Union would increase, perhaps substantially. The international experience suggests that the marketplace can be very responsive to changes in availability, attractiveness, promotion, pricing, and variety of gaming services, in terms of how much is expended in the aggregate on such services. This issue is discussed below under the heading of Market Potential.

It should be noted that social well-being, or aggregate social welfare, of a given Member State or region is not necessarily optimized by permitting a totally free market in gambling services. (The measurable social costs associated with such adverse consequences are only partially understood, as is discussed below.) Because of this, it is reasonable for policy makers to constrain the extent of gambling services in such ways as to better balance the benefits from consumption and authorized provision of gambling services against the unintended adverse consequences associated with greater levels of consumption.

Motivations of policy makers that have created the rules that govern and constrain gambling services industries have been mixed and often inconsistent. On the one hand, there are typically attempts to protect consumers from fraud and criminal activities, as well as from consumers’ potential vulnerabilities from excessive gambling. Such protections can be made in a variety of ways, usually through imposed constraints on who can gamble, when, and under what circumstances, as well as which games can be played, under what set of rules. On the other hand, policy makers often strive to maximize economic rents that can accrue to the various specified benefactors such as national, regional, or local government coffers, earmarked purposes (such as education, health, or sports), or “Good Causes.” Indeed, it is because of such conflicting objectives that the European Court of Justice in court decisions such as Gambelli or Lindman made the argument that violations of the principles of harmonization for gambling services can only be justified in the context of providing public protections against the adverse consequences of gambling; it is inadequate to justify such violations solely in order to fulfill the objective of maximizing economic rents.

The typical pattern that has occurred in Member States has been an evolution of gambling services from illegal to legal status in the following manner. Initially, gambling services are authorized, but with substantial constraints. That is followed with relaxations on some of the constraints brought about by pressures from the gambling services industries themselves, the fiscal or financial needs of earmarked beneficiaries, changing social norms, and/or the development and imperatives of new technologies. This might be countered in the political arena by groups or interests who are concerned about increased potential or actual adverse social consequences associated with a greater availability of gambling services.

Since, historically, gambling has generally been viewed as an immoral or socially undesirable activity, many policy makers presently view gambling as an undertaking with limited or ambiguous value for society at large. Many policy makers and members of the general public adhere to the view that gambling activities can pose significant risks to society in the form of adverse social impacts such as personal and family disruptions caused by excessive or “problem” gambling, increases in criminal activities (i.e. loan sharking, money laundering, organized crime activities, embezzlements, theft related to gambling, etc.), and links to corruption of public officials. Most gaming industry analysts acknowledge that if gambling activities were prohibited – especially after periods of widespread legal availability of gambling services – the result would be to create black or grey markets of illegal or questionably illegal gambling, so the option of prohibition is one that would have to be evaluated in terms of the social and economic costs that would follow from trying to enforce laws against activities that have a strong inherent demand among the general public.

Because of these kinds of concerns, legislative bodies might authorize specific forms of gaming or wagering, but place a variety of constraints on their offerings. Examples of constraints would be limitations on who could participate, where such gaming could be offered, hours of operation, specific games that could be played for money, the maximum size of wagers permitted and the maximum amounts of payout, the speed of play, who could offer the games, and who would ultimately benefit.

The presence of constraints, along with the general under-supply of gambling services, creates incentives and opportunities for ongoing illegal gambling activities (which may remain significant in society at large), and in particular within ethnic communities or among youth, who may be excluded from participating in legal gambling opportunities. Such conditions may also encourage the pursuit of loop-holes by legal operators searching for lucrative new gambling services or opportunities (as has occurred with FOBT machines in Licensed Betting Offices in the UK in the past few years.)

In some cases, policy makers may impose high excise tax rates on gambling services, for the purpose of discouraging potential patrons from participating or preventing the gambling services sector from growing larger than is deemed appropriate. When this occurs, the tax revenues generated may be allocated to general fund revenues, to specific benefactors, or to “good causes” who then benefit as a by- product of the gambling activities.

Some jurisdictions have established exclusive franchise arrangements so that only a single entity will have legal authorization to offer a particular type of gambling justified on the basis that having a single purveyor of a gambling service increases the likelihood that cohesive and realistic protections can be implemented and enforced. However, with exclusive franchise monopolies, the ability to earn substantial economic rents is also enhanced. This creates the environment conducive to conflicting objectives for Member States who are attempting to simultaneously provide protections for consumers and maximize economic benefits for fiscal and financial beneficiaries of gambling services.

As a result of the aggregate of constraints imposed on gambling services and restrictions on entities authorized to supply them, the demand for gambling services is dampened (in comparison to less constrained, more competitive alternatives.) Because of the inconveniences and limitations on consumer choice, this leads to a loss of consumer satisfaction or consumer surplus. Based on the experience of other countries, consumers would likely choose to expend greater time and effort on purchasing of gambling services under competitive free market conditions than is the case with the presence of the constraints.

Credit © European Union

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