Review of Industrial Organization 19: 265–278, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Monopoly Rents and Price Fixing in Betting
Nottingham University Business School, Jubilee Campus, Nottingham, NG8 1BB, U.K.
LEIGHTON VAUGHAN WILLIAMS
Department of Economics and Politics, Nottingham Trent University, Burton Street, Nottingham,
NG1 4BU, U.K.
Abstract. Betting markets provide an ideal environment in which to examine monopoly power
due to the availability of detailed information on product pricing. In this paper we argue that the
pricing strategies of companies in the U.K. betting industry are likely to be an important source of
monopoly rents, particularly in the market for forecast bets. Pricing in these markets are shown to
be explicitly coordinated. Further, price information is asymmetrically biased in favor of producers.
We ﬁnd evidence, based on U.K. data, that pricing of CSF bets is characterized by a signiﬁcantly
higher markup than pricing of single bets. Although this differential can in part be explained by the
preferences of bettors, it is reasonable to attribute a signiﬁcant part of the differential as being due to
Key words: Collusion, information, monopoly rents, pricing.
JEL Classiﬁcations: D4, L1, L5.
In 1998, the U.K. Monopolies and Mergers Commission (MMC) produced a de-
tailed report on the structure of the U.K. betting industry in light of the bid by
Ladbrokes, the largest chain of bookmakers in the U.K., to take over Coral, the
third largest chain (MMC, 1998). The MMC argued that the take-over would have
adverse competitive effects and recommended that Ladbrokes be forced to dispose
of the Coral shops. In this paper we argue that, although market structure may be
important, the pricing strategies of the betting industry are also a signiﬁcant source
of monopoly rents. In particular, we investigate the hypothesis that the bookmaking
We wish to thank Racedata Modelling Ltd. for supplying data on which this work is based. In
addition we are grateful to participants at the 1999 Royal Economic Society Conference in Notting-
ham and at the 1999 European Association for Research in Industrial Economics Conference in Turin
as well as two anonymous referees for many helpful suggestions.