Evolution of Macao's Casino Industry from Monopoly to Oligopoly: Social and Economic Reconsideration

By Siu, Ricardo C. S. | Journal of Economic Issues, December 2006 | Go to article overview

Evolution of Macao's Casino Industry from Monopoly to Oligopoly: Social and Economic Reconsideration


Siu, Ricardo C. S., Journal of Economic Issues


Interdependence is the occasion for both cooperation and conflict.--Allan Schmid

If one would understand the corporation problem, he must learn the peculiar feature of this form of business, ...--Walton Hamilton

The evolution of an industry is a dynamic and cumulative process. It is dynamic because "competition, property, the price structure, and wage system, and like institutions refuse to retain a definite content. Not only are things happening to them, but changes are going on within them" (Hamilton 1919, 315). It is cumulative because in a human society, "the situation of today shapes the institutions of tomorrow through a selective, coercive process, by acting upon men's habitual view of things, and so altering or fortifying a point of view or a mental attitude handed down from the past" (Veblen 1959, 132-133). In any successive period, the changing structure and performance of an industry, and its interrelationship with the economy in which it evolves are the products of interactions of a set of interdependent social, economic, and political variables of the preceding periods (Schmid 1987).

To understand the insight of the evolution of an industry, an economy, and a society as a whole, institutionalism has played an important role in economic literature since the dawn of the twentieth century (Veblen 1899; W. Hamilton 1919; Ayres 1962; Bush 1987; Hodgson 1988; North 1990; D. Hamilton 2004). Extensive interests of the institutionalists have been devoted to studies of the evolution of industrialized economies in North America and Europe, institutions and institutional changes in the rest of the world, present valuable case studies to enhance our understanding about the evolution of various industries and their relationship to the performance of an economy. Among the emerging economies in Asia, the evolution of Macao's casino industry from monopoly to oligopoly provides a valuable case, which illustrates the dynamic and cumulative process of institutional change.

Before getting to the details of this study, it is worthwhile to first clarify some important concepts. Given the scope of the study, "institutions" are defined as "rules of the game in a society" (North 1990, 3), or "a set of socially prescribed patterns of correlated behavior" (Bush 1987, 1076), whereas "institutional change" refers to "changes in rules, in informal constraints, and in kinds and effectiveness of enforcement" (North 1990, 6), or "a change in the value structure" (Bush 1987, 1099). Because of the particular attributes associated with the practice of the service-based casino industry, the concept of efficiency primarily refers to transaction costs of economic activities in the discussion on the impact of institutions and institutional change to economic efficiency. Generally speaking, the heuristic nature of transaction costs is emphasized when analyzing the changing efficiency of the casino industry over time. The heuristic nature of transaction costs "means that the exact quantity cannot be determined, but their order of magnitude can be approximated, especially when different sums of transaction costs of different property rights regimes are compared with each other" (Buitelaar 2002, 17). In the context of a modernized casino industry like Las Vegas, for example, although the exact quantity of transaction costs associated with different levels of service quality could hardly be determined, as service quality improves, business turnover in terms of the volume of customer visits or customer spending per visit would generally increase, ceteris paribus. Consequently, it is reasonable to conclude that when service quality is improved, transaction costs to customers on average would decrease; hence more efficient is the industry.

Macao was established as a Special Administrative Region of China with its sovereignty officially returned to the Chinese Government from the Portuguese Government on December 20, 1999. …

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