Australia's Gambling Industries - Productivity Commission

C.2 Consumer surplus in the gambling industries
Legalising gambling is equivalent to the introduction of a new good or service.
Once the price has been set (in a competitive market this would be determined by
the costs of production), the area under the (compensated) demand schedule above
that price is the consumer surplus resulting from the introduction of the new
product. Consumers have received this benefit by shifting consumption to gambling
and away from less preferred goods and services.
The key information needed to estimate consumer surplus in the gambling industry
comprises:
• estimates of the price and income elasticities of the demand for gambling;
• the significance of gambling expenditure in consumers’ total spending (budget
shares); and
• information on current consumption of gambling — quantity and price.
Estimates of price elasticities
There is a paucity of up-to-date estimates of the price elasticity of gambling, and
Australian estimates are even more scarce. There are a number of reasons for this,
notably the difficulty of making an accurate measure from the data available. In
Australia, as in other countries, access to gambling has been heavily restricted. The
large changes in the quantity of gambling products purchased have been driven
primarily by changes in regulations rather than changes in price. Changes in market
shares between different forms of gambling are largely a result of the sequencing of
the deregulation process, rather than changes in the relative prices of gambling
products offered. In Australia, the decline in the average price of gambling that has
been associated with the rapid rise in consumption is a result of the sequencing of
liberalisation, with high priced forms of gambling such as lotteries being introduced
before lower priced forms such as gaming machines and casinos.
The Commission has come across a range of elasticity estimates in the literature,
which are presented in table C.1.
C.4 GAMBLING