Oligopolies – Casinos in Las Vegas and Atlantic City

Another great article from the Econz@Otago economics magazine. Having a look at the Casino industry in Las Vegas and Atlantic City we see a prevalent oligolistic market.

In 1969, the state of Nevada allowed financially well endowed companies to obtain gambling permits and subsequently within a couple of years huge resort-style casinos were built on the Las Vegas Strip. By 2008 24 of the largest casinos had captured approximately 84% of total Las Vegas casino revenues – NZ$8.03 billion which equates to 9% of NZ’s GDP in 2009.

In 1976, eager to gain the revenue from casinos, the state of New Jersey made gambling legal. Like Las Vegas the state required that only investors with large amounts of financial backing could operate and own gaming establishments. In the late 1990’s Atlantic City was on a par with Las Vegas regading revenue and similarly the industry was dominated by as few as 11 firms earning NZ$6.37 billion.

In both Las Vegas and Atlantic City the largest firms came to dominate the industry. The following were common features:

1. Economies of scale – a casino twice the size can accommodate more than twice the customers.
2. Economies of scope – larger casinos can supply a larger variety of facilities – hotels, night-clubs, shows etc.

With these characteristics firms can dominate and therefore operate in a oligopolistic market. The difference between the oligopoly that has emerged in Las Vegas and the one that has emerged in Atlantic City is the sea of smaller gambling establishments (called a competitive fringe) which continues to engulf the Las Vegas Strip. In Nevada, the gaming commission sets few restrictions on new casinos entering the industry whereas the size restrictions in New Jersey allows for only large establishments and bars small entrants.

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