Question

Many European governments are reluctant to allow online betting in an attempt to protect
their national gambling businesses. A recent study found that seven countries out of the
27 in the European Union banned online gambling. Of the other 20 only 13 have opened
their markets to competition; in the rest gambling is dominated by monopolies owned or
licensed by the government. In the Netherlands, for example, residents can only place
online bets with a state monopoly: De Lotto. The Ministry of Justice even warned banks in
the country that they could be prosecuted if they transferred money to online gambling
companies. Other countries have ordered online betting companies to block access to
their sites. Their governments argue that this is to protect people from gambling
excessively. However the revenue they gain from their own monopolies should not be
ignored as a possible motive.
Questions
1. If governments believe that gambling is bad for their citizens then in economic
terms how would you classify this service?
2. Why might governments want to protect their own monopolies in the gambling
sector?
3. What might be the effect of greater competition in the gambling industry in these
countries?

Answer 1

1. If governments believe that gambling is bad for the economy and citizens, then in economic terms it is considered as a negative externality service which leads to a cost where social cost is greater than private cost of consumption. The costs are spillovers due to gambling, such as low productivity of citizens.

2. Governments might want to protect their own monopolies in the gambling sector in order protect the business and as the governments want to reduce the competition in the industry and let themselves have all the control and greater chances of profitability. The governments try to gain in terms of greater revenue every year as major competition is restricted in the industry and protect people's wealth.

3. The effect of greater competition in the gambling industry could lead to less chances of greater income generation for the government, illegal practices and money being siphoned off. It leads to serious health related concerns as more number of people will try to gamble via several firms. This will increase the demand as the costs of gambling will reduce led by competition. It might lead to money being used for illegal means and not for the economic good. The productivity of the country might reduce as more number of people will try to gamble away their wealth and it might increase unemployment and increase the risk of loosing everything at one go.