Demsetz on monopoly in classical economics


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Do monopoly concessions increase or decrease gambling?

Do monopoly concessions such as for casinos and the TAB increase or decrease gambling? Is the under-supply of output by a monopoly a good or a bad thing when the good itself is seen as a bad.

James Buchanan started his 1973 paper ‘A defence of organised crime?’ quoting Samuel Butler:

… we should try to make the self-interest of cads a little more coincident with that of decent people

Buchanan’s simple idea is that if a monopoly restricts the output of goods, a standard analytical result, then it must also restrict the output of bads! Buchanan end’s his paper with:

It is not from the public-spiritedness of the leaders of the Cosa Nostra that we should expect to get a reduction in the crime rate but from their regard for their own self-interests

The Cosa Nostra did have a reputation for running honest casinos and keeping crime down nearby.

If an illegal monopoly or cartel becomes competitive and barriers to entry are eliminated, in the long run, more illegal goods will be traded at the new equilibrium.

Should gambling outlets be public monopolies because they would be smaller, badly run and slow to innovate? The monopolisation of bads may shift us in the direction of social optimality. Buchanan, of course, adds that:

The analysis does nothing toward suggesting that enforcement agencies should not take maximum advantage of all technological developments in crime prevention, detection and control.