The economics of Las Vegas

by on July 4, 2005 at 5:57 am in Economics | Permalink

Casino/hotels invest resources to keep you within their space, so you will gamble on behaviorally tempting negative-sum games. This means excellent food at bargain prices, and of course disorientating space designs as well.  No one can find their way through a big casino for the first time without getting confused.

These two features — food quality and imperfect mobility — are two sides of the same coin.  You are more likely to gamble where you eat, so they win back your culinary gains on the slot machines.  If gambler mobility increases enough (e.g., Las Vegas now has a monorail), the quality of casino food will decline.  There is no point in luring in those who will not stay.

For the pure non-gambler such as myself, it is the cross-subsidies which make the city attractive.  I get the lower prices and never cough the money back up at the slot machines. 

Would more mobility across casinos make me better off?  On one hand, more mobility would mean more freedom of choice.  I would no longer be stuck in the hotel restaurant, unwilling to navigate the casinos and the deliberately unsynchronized traffic lights along the main road.  Yet the macro-state of being stuck (ex post, but not ex ante, when choosing a hotel) also delivers, in competitive equilibrium, lower prices and higher quality for the meals I want.  Do I love or hate this unusual trade-off?  Is this how life in a gilded cage would feel?

How can non-casino restaurants survive here?  They must compete against highly subsidized competition.  Yet the range and quality of non-casino places is first-rate.  Does this mean that restaurants elsewhere could be better — essentially for gratis — if only they had to try harder?  Have we found "X-Inefficiency" within the restaurant industry?

I’ve opened up the comments section.

Christopher Meisenzahl July 4, 2005 at 8:14 am

Great post Tyler, really got me thinking over here. ;-)

Never been to Vegas, but I know a ton of people love it. Like you, gambling really does nothing for me.

Chris
http://amateureconblog.blogspot.com

Jake Walker July 4, 2005 at 8:30 am

It seems to me that the trend in Vegas lately is to open amazing new restaurants (versions of hard to get into restaurants from New York, San Fran, LA, etc.), and to offer exclusive reservations and free meals to known gamblers.

The ability to track play by players (through players cards, etc.), has allowed casinos to become very good at directing and rewarding their players. So now, rather than opening up the buffet at an inexpensive price and hoping people will stick around, newer casinos in Vegas offer rooms/food/etc. only to gamblers who they have tracked, and turn the faucet of goodies off as soon as the play stops.

In fact, the new Wynn casino is brighter, more colorful, and less confusing, and contains some excellent restaurants.

Better than any other business, perhaps, Vegas now knows their customers — and knows who to comp.

John P. July 4, 2005 at 10:02 am

Good post (no surprise) and good comments. Here are two further thoughts:

1. W/r/t the restaurants, one (relatively small) factor may be that there is little overlap between the population that goes to good restaurants and the population that considers eating in the hotel as a real option.

2. W/r/t gambling (which has never attracted me, either), there seems to be a basic, human appetite for the moderately challenging activity (sort of what Carlyle referred to as “a Turkish bath for the mind”). Betting (like many other games, especially video games) is interactive (“hot” in Marshall McLuhan’s terms) but not really mentally taxing. Success is easy to measure, feedback is fast, the surprises remain within a predictable range, and some skill, but not a lot of it, is required.

Bex July 4, 2005 at 12:01 pm

Can’t say for sure – never been to Vegas and not a gambler (in its strictest sense anyway), but seems plausible there are
enough permanent residents in Vegas (yes, there is such a genre) who want an alternative to the “touristy” restaurants
of casinos, despite the implicit subsidy.

gek July 4, 2005 at 1:57 pm

All the major strip casinos are owned by one of two companies (MGM-Mirage and Caesar’s/Harrah’s). So the mobility offered by the Monorail is mostly illusiory. This is more clear when you look at the older trams, that only connected hotels that were adjacent and owned by the same group at the time they were built, e.g. Mandalay Bay-Luxor-Excalibur, or Bellagio-Montel Carlo, which don’t even stop at intervening properties. (They are now owned by MGM Mirage.)

Mark Shroder July 4, 2005 at 5:11 pm

Kip Esquire is correct. Cross-subsidization has been dead for years.

Michael Cain July 4, 2005 at 5:36 pm

You neglected one of the other important attributes of most of the casinos — lack of cues about the time of day. No outside windows, no clocks. People who have been up for 24 hours or longer tend to make worse decisions…

Ronald Brak July 5, 2005 at 12:08 am

“BTW, why is gambling negative-sum? If the gambler’s loss is the casino’s
gain, isn’t that zero-sum?”

Hahaha! Good point. But for me gambling in a casino is a negative sum
game. (Never been good at counting cards) Also, part of the winnings has
to disapear into casino overhead and company profit, so winnings will be
less than the amount of money put in, so it’s fair to call it a negative
sum game. Gambling with friends would be a zero sum game, for the total
winnings will equal the money put in. Investing in the stock market is a
positive sum game because, over time, the “winnings” will on average be
more than the original stakes.

mschrist July 5, 2005 at 8:55 am

I’ll agree with the posters who disagree with the premise of the question–my experience in Vegas is that the food is neither better nor cheaper than it is elsewhere. I usually found it a better deal to go to the chain restaurants in the malls on the Strip than to eat at the casinos.

Mr. Econotarian July 5, 2005 at 10:42 am

The new monorail is a true blessing to convention goers who stay in the strip hotels and need to get to the Las Vegas Convention Center. Taking a taxi or convention busses was a nightmare. I generally found I could get to the convention center faster on the monorail than someone driving their own car from the MGM Grand.

dsquared July 5, 2005 at 11:30 am

>BTW, why is gambling negative-sum?

The old proverb refers: “The game’s not worth the candle”.

SShu July 5, 2005 at 12:32 pm

As a behavioral economist who grew up in Las Vegas, I’ll throw in my 2 cents. Although it’s an overgeneralization, I’d say there are two main types of restaurants on the strip, designed to appeal to two types of customers. The high-end national name establishments (e.g., Le Cirque), which are a recent phenomenon in Vegas, appeal to the free-spending tourists. These are people who come to Vegas chasing the “what happens here stays here† motto. Although they may stick to budgets at home, they take an attitude of living it up while on vacation – sort of a mental accounting approach, where any expense can be justified by virtue of being in Vegas. Since these folks are not concerned about budget – they might even be disappointed at not living it up with an expensive dinner – they’re very happy to visit the famous name restaurant and spend a lot. The type of big spender that Jake Walker aptly describes fits into this group. This behavior also contributes to KipEsquire’s observation that hotels now make more from food (and other stuff) than gaming these days.

On the other hand, there are the within-casino restaurants that are very heavily subsidized – the most obvious example being the big buffets. Although they certainly attract a large number of guests from within the hotel, I think that their real target is people seeking a cheap meal who might not otherwise be in that casino. My best anecdotal evidence is that these cheap buffets are even more prevalent at the casinos in the city suburbs than they are downtown. Who are they trying to attract? Local citizens, for one, who may or may not be escorting out-of-town guests. Convention-goers, who often stay at non-casino hotels, also fit here. Locals can eat at any of a million nearby restaurants, but the cheap food at the casinos does draw them in. And they inevitably drop some money into the slots on their way in or out of the buffet.

So, my theory comes down to this: the high-quality restaurants, although cheaper than you might find in other cities, can still charge a significant amount to the freewheeling tourists who are ignoring their budget; the cheap (but still tasty) buffets focus instead on attracting people who would not otherwise walk into the casino.

By the way, food has definitely gotten more expensive in Vegas over the past 15-20 years. As teenagers, we would all go to the casino buffets for dinner, especially the $4 buffet at Circus Circus. You can’t even get fast food for those prices. Being underage, we never played the slots so the casino wasn’t making it back from us. (Even if we had been tempted to play, casino security is very aggressive when it comes to minors at the machines. We knew better than to try.) It might not have been a free lunch, but it was pretty darn close!

M.E.T July 5, 2005 at 4:34 pm

Gambling is only negative-sum if you leave out the crucial “enjoyment” payoff that the gambler recieves. For instance put $5 down on a football game btwn two teams you know nothing about, and suddenly you transformed the event into more excitement than any movie playing in the theatres will provide you with (and for considerably cheaper).

Gambling in Las Vegas is no different than renting jet ski’s at the beach. It is exciting and takes the edge off of life. It is an investment in happiness. Happiness in turn makes an individual more efficient and effective when he returns to normal life. Thus, although a losing-gambler has less money, he has acquired an asset that previously did not exist, while the money he spent has been transfered to the casino– meaning the transaction is (like all trade) positive-sum.

In defense of why a rational person might gamble: if the happiness asset of gambling is equal to the asset produced from renting a jet ski, the person should choose the former because a gamble has the potential (even if low) of rewarding the player with his original investment plus a return.

EXPENSIVE July 5, 2005 at 5:09 pm

WRONG!!! PLEASE POST CORRECTION!
Las Vegas is expensive now.

please see comments above by: KipEsquire, Mark Shroder, josh, mschrist, Tim Shell

I used caps in hopes to call attention to this egregious factual error.

Most of the restaurants “in” the Strip casinos are now quite pricey. $100 for two is not uncommon, and that is NOT just at the swanky places.

Half Sigma July 7, 2005 at 12:23 pm

Some of the casinos still have a buffet for the cheapskates, but it seems that most of the restaurants, even in the hotels, are pretty expensive. They are now seen as a profit center just like the gambling floor. (But as someone pointed out, the high rollers get their meals comped.)

Jim Coomes July 10, 2005 at 7:38 pm

Regarding restaurants and tourists:

Over symplisticly, dividing the tourists into two groups, the ones on a budget and the ones that are not. The ones on a budget will tend to eat/drink on the inexpensive. The ones not on a budget will eat/drink were they please. ie. go and spend when/where the mood takes them, in order to have a good time. The costs are not an issue.

I live and have a business in a tourist resort.

Erik November 18, 2005 at 6:42 pm

Las Vegas can be expensive but many of the restaurants are still affordable. Sometimes you have take a cab a block or two away from the strip. Check out the pricing on some of the menus on this site: http://www.menusearch.net

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æ°´æ— ç—• July 4, 2007 at 4:11 am
hyangel July 11, 2007 at 11:09 pm

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xdrs July 15, 2007 at 10:23 pm

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xdrs July 25, 2007 at 1:44 am

liying 07年7月25日

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wwwslmwps July 31, 2007 at 1:41 am

liqingchao 07年7月31日

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Missliang August 16, 2007 at 2:46 am

houyuping 07年8月16日

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涂层测厚仪
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光盘制作
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激光打标机
搬家公司
北京搬家公司
hongkong hotel
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beijing tour
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集团电话
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china tour
china tour
青春痘
青春痘

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