2). What causes the government to intervene in the lottery market?

In this section we examine the structure of the lottery market to determine the
possible factors that cause the government to believe that an intervention is
necessary. First, we describe the characteristics of a perfect competitive market and
explain why it is preferred. Finally, we identify the general imperfections of the
market for game of chance and explain the necessities of the government
intervention.
A market is perfectly competitive if the following four conditions are satisfied
(Baarsma, 2016). Firstly, it is necessary that there is a sufficient amount of both
producers and consumers in order that the market price cannot be influenced by
any individual. Secondly, there should be no barriers to prevent both producers and
consumers from entering or leaving the market. Thirdly, the product that is being
traded has to be homogenous, which means that every product is identical and
cannot be distinguished by consumers. Fourthly, the absence of information
asymmetry is required. This means that consumers have as much knowledge about
the product as producers.
Perfectly competitive market is generally preferable because it generates most
benefit to both consumers and producers (Baarsma, 2016). In a perfectly
competitive market, the Pareto efficiency is realized because there is no dissimilar
allocation that makes either producers or consumers better off without making the
other party worse off (Varian, 2010). Therefore, both consumers surplus and
producers surplus are maximized when the market is in equilibrium.
In the market for game of chance, consumption of its product could have negative
consequences on the consumers, producers and also the community (Gainsbury,
Parke and Suhonen, 2012). Gainsbury , Parke and Suhone (2012) indicate that
having difficulties in limiting money or time spent on gambling could lead to
problem such as health and physical disorder, bankruptcy or crime. Another
disruptive aspect that causes the market to fail is the violation of the fourth
condition. To protect consumers from being exploited, gaming providers are obliged
to inform consumers to the risks involved in games of chance (Government of the
Netherlands, 2013). In order for the market to function properly, Gainsbury, Parke
and Suhone (2012) imply that it is necessary that the regulator intervene in this
market.
As part of the market for game of chance, the excessive consumption in the lottery
market could lead to market failure. Also, it could cause negative externalities to the
community. To minimize consequent harm, it is, therefore, necessary that the
government intervene. In the next section, we examine how the government should
intervene in the lottery market.
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Baarsma, B. (2016). Market failure, government failure & public interest [PowerPoint slides].
Retrieved from https://blackboard.uva.nl/bbcswebdav/pid-6132746-dt-content-rid9322224_1/courses/2410E001.6012B0331Y.S25.EX1.2015/Government%20Intervention%20in
%20Markets%20%5BBarbara%20Baarsma%5D.pdf.
Varian, H. R. (2010). Intermediate Microeconomics, A modern Approach. New York, United
States: W.W. Norton & Company.
Gainsbury, S., & Parke, J., & Suhonen, N. (2013). Consumer attitudes towards
Internet gambling: Perceptions of responsible gambling policies, consumer
protection, and regulation of online gambling sites. E-Journal of Computers in
Human Behavior, 29(1), 235-245. Retrieved from
http://www.sciencedirect.com.proxy.uba.uva.nl:2048/science/article/pii/S074756321
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Government of the Netherlands, (2013, July 1). Regulation on advertising games of
chance comes into effect. Retrieved from
https://www.government.nl/ministries/ministry-of-security-andjustice/news/2013/07/01/regulation-on-advertising-games-of-chance-comes-intoeffect.