Will the rake eventually disapear ?

[daego]

We are two students from Lund University (Sweden) who are about to write our BA thesis in microeconomics about online poker.

Our focus will apply mainly to what will happen with the price/rake as competition grows fierce. We will present a short background and then some questions. Any input will be greatly appreciated.

The poker market today hosts several different companies. There are at the same time no great barriers for new ventures to enter the market. All these companies seem to have the same structure and would therefore be presented with similar costs. These factors ought to, and usually do, result in extreme competition. Despite this the companies stated above make huge turnovers and predict strong financial growth.
The marginal cost for a new customer is close to zero aside from the marketing expenses, especially in relation to the revenue a new customer can generate. Marketing costs for a non price aware customer however is huge. Interestingly enough players are getting more and more price aware. Bonuses and other promotions are not beneficial compared to the enchanting possibility of a lower rake. Poker customers are not slow to move to another site/affiliate if it suits there mood. This indicates that a price aware consumer would, all other things equal, choose the poker room that offers the lowest rake.
Poker players are getting more price aware thanks to programs such as PokerTracker and the fact that more and more sites offer rakekickback.
Regardless of these changes prices stay high although some companies do promote lower prices in different forms. The competition of market shares however has so far been about aggressive marketing, not aggressive pricing.


1.Knowing that a lot of what is said only speaks for a small part of all poker customers what is your opinion about the general direction in “price awareness”? Will the average poker player start to take actions to reduce his/her rake?

2.Is the average poker player price elastic or just eager to “gamble it up”?

3.Is there a possibility to see how the change in traffic differs after a change in price? => Is there any concrete examples?

4.What are the chances that a free poker room enters the market el. could a free poker room enter the market? In other words, a corporation releases a freeware directed to poker players and swoops up the entire market. Such a corporation would finance itself by some other means than rake (advertising etc) and spend no money on marketing. => Are the entry barriers to large for such a venture?

5.We need data and since our BA thesis will be public, poker sites are not eager to supply us with information/data. If you know how to obtain anything on traffic, commercial expenses, prices, consumer surveys etc, we would be very grateful.

[AvivaSimplex]

One thing that you are neglecting is that the price of poker (or rate of return, for skilled players), does not depend exclusively on rake. I think the quality of the opponents matters far more. This is why we haven't seen rake reductions: beginning players don't really know about rake. They make their decisions based on advertising, bonuses, and other factors such as integrity and safety. Advanced players want to play wherever beginning players play. Thus, poker sites are best served by attracting as many new players as possible, and rationally allocate their money to bonuses rather than rake reduction.

To your questions:
1. As the average player gets better, there will be more of an awareness of rake. However, the effects of rake will still be small compared to the effects of the skill level of the player pool. Given two sites with equal success at drawing new players, veterans will choose the one with the lower rake. However, a site with lower rake would probably be better served raising the rake to the industry standard and spending the money on promotions.

2. Veterans are very keen to go to whichever site can get them the highest hourly rate. Beginners are also price sensitive, but will prefer bonuses to lower rake.

3. You might look at Party before and after it cut off Empire. This is similar to raising the rake--a large portion of veterans had rakeback offers through Empire affiliates. When Empire games no longer included the Party fish, most veterans chose to pay higher rake to play against worse competition.

4. This has been tried. I forget the site's name. It didn't work very well. The software should be relatively cheap to buy/license. The entry barrier is advertising enough to attract a critical mass of players so that there are always plenty of games going on.

5. pokerpulse.com has traffic information.

[jively]

When all the online brokers came along, the cost of stock commissions dropped a lot, but generally not to $0. People still pay $12 at TD Waterhouse and others pay $7 at Scottrade. It's not all about price.

-Tom

[danzasmack]

A huge externality is player base. This is not something that other sites can take advantage of.

[pr0crast]

[ QUOTE ]
When all the online brokers came along, the cost of stock commissions dropped a lot, but generally not to $0. People still pay $12 at TD Waterhouse and others pay $7 at Scottrade. It's not all about price.

-Tom

[/ QUOTE ]
Bad analogy. All brokers offer the same thing, right? You are buying and selling the same stocks. Interpoker is to AMEX as Party is to NASDAQ.

[Riddick]

1.(a) Price awareness is almost nonexistent in most of the online poker world in my opinion (b) No. The rake is too insignificant as it is.

2. Neither - the rake is just too small online to have any elastic reaction to 5 cent changes in rake, but most online players are probably online to improve, or atleast think that they are improving their game.

3.Not sure but doubtful. There is mountains of evidence to show significant traffic movements with regards to minor changes in bonus requirements, however.

4. I don't think any new poker rooms can enter the market at this point without some significant technological or legislative change. The greatest barrier to entry is the bazillion dollar marketing campaign coupled with a sharply declining growth rate in the online poker community (could be wrong about this but I think Im right)

5.Poker Tracker hand databases are out there somewhere I think. You can pay for them as well if you set up a website and pay like $10 for every 100k hands submitted or something like that.

[Kneel B4 Zod]

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There are at the same time no great barriers for new ventures to enter the market.

[/ QUOTE ]

this is quite wrong

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The marginal cost for a new customer is close to zero aside from the marketing expenses, especially in relation to the revenue a new customer can generate. Marketing costs for a non price aware customer however is huge.

[/ QUOTE ]

I don't understand this


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Interestingly enough players are getting more and more price aware.

[/ QUOTE ]

smart/aware people have always known about rake

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This indicates that a price aware consumer would, all other things equal, choose the poker room that offers the lowest rake.

[/ QUOTE ]

possibly, but all other things aren't equal
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spend no money on marketing

[/ QUOTE ]

regardless of pricing structure, marketing costs will be huge

[ QUOTE ]
Are the entry barriers to large for such a venture?

[/ QUOTE ]

they have the same entry barriers as any other new site: critical mass of players

[jively]

[ QUOTE ]
[ QUOTE ]
When all the online brokers came along, the cost of stock commissions dropped a lot, but generally not to $0. People still pay $12 at TD Waterhouse and others pay $7 at Scottrade. It's not all about price.


[/ QUOTE ]
Bad analogy. All brokers offer the same thing, right? You are buying and selling the same stocks. Interpoker is to AMEX as Party is to NASDAQ.

[/ QUOTE ]
Well, I think the analogy is good. Different brokers offer different research, software, speed of execution, local offices, and so on. Just like poker rooms have different expert articles, software, speed of play, ... and yes a different pool of opponents.

-Tom

[Evan]

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There are at the same time no great barriers for new ventures to enter the market.

[/ QUOTE ]
This is wrong. The cost of acquiring customers is extremely high for companines entering the industry now.

[ QUOTE ]
The marginal cost for a new customer is close to zero aside from the marketing expenses

[/ QUOTE ]
Why would you ignore marketing expenses?

[ QUOTE ]
Bonuses and other promotions are not beneficial compared to the enchanting possibility of a lower rake.

[/ QUOTE ]
100% wrong.

[ QUOTE ]
1.Knowing that a lot of what is said only speaks for a small part of all poker customers what is your opinion about the general direction in “price awareness”? Will the average poker player start to take actions to reduce his/her rake?

[/ QUOTE ]
The average custoemr doesn't care about rake. That's why sites that tried to compete on this factor have failed.

[ QUOTE ]
4.What are the chances that a free poker room enters the market el. could a free poker room enter the market? In other words, a corporation releases a freeware directed to poker players and swoops up the entire market. Such a corporation would finance itself by some other means than rake (advertising etc) and spend no money on marketing. => Are the entry barriers to large for such a venture?

[/ QUOTE ]
Who's going to know about it?



Seriously, pick another topic.

[Quicksilvre]

To answer the question in the title--no. In oligopolies (like online poker) prices are stable and approximately equal. Any bidding war or major price increase tend to be ruinous, so the rake tends to stay the same.