Do economies of scale exist in the Atlantic City casino industry?

Abstract

Purpose

The purpose of this paper is to examine evidence indicating the presence of economies of scale among Atlantic City casinos at the property‐level and between multi unit and single unit operators.

Design/methodology/approach

The study extended two previous studies by performing a vertical analysis of financial performance data and by using multiple regression analysis to study costs and revenues over time. The study collected 320 annual property observations for the main analysis for the period of 1980 to 2009 and used detailed financial performance data for the 2007‐2009 period.

Findings

Findings from both forms of analysis support the existence of scale economies in Atlantic City at both the property level and for multi unit operators.

Originality/value

Results of this study suggest that there are economies of scale for casinos in Atlantic City. Additionally, larger size was associated with better performance even during the current economic downturn. Managers or owners of casinos in Atlantic City may consider developing large physical size of their casinos when it is feasible. Additionally, the success of multi unit operators compared to single unit operators has implications for acquisitions while property values are depressed. Replication as a tool to aid generalization of results across time and situation contexts is illustrated and a number of future research lines are suggested.

Citation

O'Donnell, J.M., Lee, S. and Roehl, W.S. (2012), "Do economies of scale exist in the Atlantic City casino industry?", International Journal of Contemporary Hospitality Management, Vol. 24 No. 1, pp. 62-80. https://doi.org/10.1108/09596111211197809