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.

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?

4. How does this relate to natural monopolies in the U.S.?

5. What are the market structure implications?

6. What are other relevant examples can be applied and discussed?  

Answer 1

Solution

If Govt's believe that gambling is bad for their citizens then in economic terms I would classify that service as SIN services.

SIN goods / services are those certain goods which are deemed to be harmful to the society.

Example - Alcohol,tobacco,gambling etc.,

2.Because they want to have all the income that is being generated out these SIN goods / services - i.e.,Gambling

Generally in which ever country these type goods / services are NOT BANNED it is not that the Govt's want to promote that but the Govt's think that since it is not good for their society,they impose very high taxes in order to discourage the same.The revenue generated out from these will be used for public welfare,rehabilitating people affecting from these activities,etc.,These also opt for this strategy when they think that it is difficult to abolish / prohibit these activities.

3.We know that in a perfectly competitive market the profits are minimal and the production is according to the demand is at the optimal level.

So,If there is greater competition in the gambling sector,it leads to improvement in the industry as a whole ,the demand increases and the number of firms will increase in the industry,the efficiency of the industry will improve,which results in more demand.

So,it becomes increasingly harmful for the society.

4.Natural Monopolies arise when the firms have some significant advantage over the other firms in terms of ownership of resources,size / investment,first mover advantage etc.,

But here the govt.is creating a monopoly in order to curtail / restrict / create in efficiency in the demand in the gambling sector and also to solely absorb all the revenue generated out of the gambling industry.

5.It is a monopoly when the govt.is allowing the gambling only through the state companies.

It is a perfect competition when it is just taxed high but free for all . different players to operate.

6.Ex: The case of Indian Tobacco Industry.Tobacco attracts very high tax (SIN Tax).The market structure perfectly competitive.The Govt.spends the the additional revenue generated out of the industry to put up ads in public discouraging them from smoking by educating them about the ill-effects of smoking ; free-rehabilitation service for addicted persons ;improving infrastructure by creating dedicated places for smoking in order to avoid discomfort to the general non-smoking public

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