Does Too Much Regulation Kill the Online Gambling Industry?: An Empirical Analysis of Regulation Effects Using VAR Model

Abstract

Motivated by the growing interest of online gambling regulation, we empirically investigate whether the regulation successfully decreases online gambling addiction. For this purpose, we use a vector autoregression (VAR) model to identify interrelationship changes among online gambling games and service platforms due to the regulation. In particular, we propose three theoretical perspectives: the role of prior experience, switching costs and network externalities. We find that the impact size of the regulation is different depending on levels of prior experience, and the regulation significantly affects the switching behavior of users on online gambling platform. Therefore, we offer one of the first empirical evidences that examine the regulation effects on online gambling using VAR model. We also suggest the policy makers should make suitable regulations for each user group to effectively avoid generating gambling addicts without interrupting the economic growth of the online gambling industry.