Consumer spending in the gaming industry: evidence of complementary demand in casino and online venues

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.