The Influence of E-Commerce in Changing Competition in Regulated Industries: An Analysis in the Italian Sports Betting Market

The effect of the Internet and e-commerce on industry competition has been widely discussed in economic-managerial literature. Most of the studies focused on the analysis of the impact of Internet technologies on specific industry structural factors – in particular on sectoral price levels –, but no sufficient empirical evidence based on overall industry change is yet available. The aim of this work is to analyze the influence of e-commerce on the transformation of the industrial structure and competition in a regulated market, that of Italian sports betting. This market, because the effect of a process of legalization of on-line sports betting that started in 2006, has been interested by a continuous shift of purchases of sport bets, ranging from the traditional sales channels to digital ones. This has contributed in creating an on-line gambling sector among the most developed and consolidated in the world. From a methodological point of view, firstly the data from a series of secondary sources was processed in order to examine the main changes in the Italian sports betting market induced by the legalization of on-line gambling. Secondly, the data and information collected through specific empirical investigations was used to examine the impact of Internet betting on gambling operators’ business models and on players’ gambling behavior in the Italian market. The results of the analysis has shown that the development of Internet technologies and of e-commerce has had, on the one hand, a positive influence on the growth of the sales in the Italian sports betting market; and on the other hand, has impacted on a series of structural factors in the sector – entry barriers, number of competitors, geographical opening of the market, levels of pricing, average profit margins – in such a way as to determine an increase in industry competition. In particular, use by foreign companies of the electronic distribution channel as a ‘mode of entry’ into different geographical markets is causing the development of competition that goes beyond national borders, reducing the strongly domestic oligopolistic structure that has always characterized the Italian sports betting industry.


Introduction
The use of the Internet as a direct sales channel for betting has led to the development of a new industry, that of Internet gambling. The birth of this industry took place at the end of the 1990s, thanks to a strong increase in web use worldwide and the introduction of specific software programs for on-line gambling . Gamblers quickly showed their appreciation for the advantages of Internet betting, giving rise to a market characterized by the specific competitive dynamics.
For a long time, however, on-line bets had been placed on illegal or otherwise unregulated markets. The State legal systems, which normally reserves for gambling a different treatment compared to that of general economic activities to ensure a strong public control over the sale of gambling products (Sirianni, 2012), had in fact mainly used a non-interventionist approach, or have prohibited the majority of Internet betting (H2 Gambling Capital, 2013;Gainsbury & Wood, 2011;Rose, 2006). Only more recently, several States -including Italy -have legalized many types of on-line betting, favoring the emergence of numerous regulated Internet gambling markets (Fidone & Linguiti, 2013;Williams, Wood, & Parke, 2012).
More specifically, in the Italian market, under the 'Bersani decree' of 2006 and the subsequent 'Abruzzo decree' of 2009, the 'Agency of Customs and Monopoly' (Agenzia delle Dogane e dei Monopoli), the regulating body of the Italian gambling sector, has issued a series of regulations for the disciplining of on-line gambling, which has allowed players to access via the Internet all types of betting already provided for through the physical distribution network (except in the case where the intrinsic characteristics of the game prevented the use of the digital distribution channel). These regulations have also affirmed a state-controlled management model of Internet gambling -the methods of access to the market and the gambling rules are always defined and monitored by public authorities -but characterized by a more open approach to competition than in the past (Mataluni, 2013). This has meant that even for a highly regulated market such as that of gambling, some typical effects of the use of Internet technologies on competition were verified.
In this regard, the economic-managerial literature highlighted that the increase in the level of penetration of the Internet and the development of e-commerce have caused profound changes in the sector structure and the level of efficiency in many industrial and service markets. Most of the studies focused on the analysis of the impact of e-commerce on price levels at the sector level. This was to verify, through empirical research, whether, simplifying and making the consumer purchase process cheaper, electronic markets could increase efficiency by promoting price transparency (Bakos et al., 2005), enhancing, therefore, price competition, in agreement with the economic models of perfect competition (Lal & Sarvary, 1999). The results of these studies, as described below, although not unequivocal, mainly confirm the greater price efficiency of e-commerce compared to the more traditional sales network.
However, if we want to fully assess the influence of the Internet on industry competition, we must consider, as noted (Wang & Zhang, 2015, p. 72) that the price, albeit very important, is "only one perspective of competition and does not reflect the change in the industrial structure".
In this regard, Porter (2001, p. 66) in his study on the strategies that companies should adopt in relation to the diffusion of the Internet, describes, through the five forces framework, the different aspects to consider in order to evaluate more fully "how the Internet influences industry structure". He points out, alongside the already reported trend towards a 'migration towards a competition in price', other possible changes in the structural factors of the sector -entry barriers, number of competitors, market size -induced by Internet technologies. Porter, while pointing out that the expected changes, considered as a whole, suggest an increase in the level of industry competition, notes that "it would be a mistake to draw a general conclusion on the impact of the Internet on long-term industry profitability; each industry is affected in different ways", opening up the relevance of research works that investigates this issue in the context of different industries. It is therefore interesting to examine how Internet gambling has affected overall the structural characteristics and the efficiency of the gambling market, also because this aspect has not yet been sufficiently analyzed in managerial studies.
The general objective of this research, then, is to analyze the influence of e-commerce in changing industrial structure and competition in the Italian regulated sports betting market.
The decision to analyze this type of sector is linked to its particular characteristics. As already highlighted, the gambling sector has always been characterized by the need to ensure a strong public control over its business activities. This is to protect consumers from illegal gambling and the risk of pathological gambling, as well as allowing the State to exploit the tax revenues from the sale of gambling products (Sirianni, 2012). Therefore, the gambling sector is one of the most regulated sectors and it is useful to examine if and how in these types of sectors the Internet has influenced the industrial structure.
The choice of studying the Italian sports betting market, on the other hand, is linked to the maturity achieved by this market. As observed (Kaufmann & Walden, 2014, 11) "as electronic commerce matures, firms will exhibit economically predictable behaviors and abide by well-established economic rules". In other words, in order to understand more fully the influence of Internet technologies on the industry structure and competition, it is necessary to wait for the time necessary for the effects of the change to become apparent. The maturity of the Italian market is the effect of a process of legalization of on-line sports betting that started more than 10 years ago. For this type of gambling Italian consumers have shown an appreciation for the possibility of making bets via the Internet. This has caused a continuous shift of their purchasing behavior from the traditional sales channel, to the digital one. Elaborating the market data, it is possible to highlight in this regard that in 2017 the total on-line amount wagered in sports bets has surpassed the total amount wagered achieved through the land based network. This has contributed to creating an on-line gambling sector among the most developed and consolidated in the world. In fact, the data shows that in 2017 the total on-line wagered amount reached almost 6.5 billion euros, six times the value recorded ten years earlier (Agency of Customs and Monopoly, 2017a; 2017b).

Literature Review
The development of the Internet has led to significant changes in the relationship between firms and customers, ijbm.ccsenet.org International Journal of Business and Management Vol. 13, No. 12; "either directly, through e-commerce actions, or indirectly, making previously rare and expensive information interactivity available" (Collesei, Casarin, & Vescovi, 2001, p. 33). The possibility of reaching the consumer through a direct electronic distribution channel has caused a process of commercial disintermediation that has had a clear impact on the industry structure and on competition in numerous sectors. Various studies in the field of economic and management science have therefore analyzed the transformations induced on competition by the introduction of Internet technologies in different industries. In particular, the attention of the researchers has been focused on the study of the impact of the Internet on industry price competition. They have tried to verify the hypothesis that the low research costs associated with e-commerce lead to a reduction in prices at the level of marginal costs, for perfectly homogeneous products, and a reduction in prices for differentiated products (Bakos, 1997;Alba et al., 1997). Their analyzes then examined, through empirical research, whether prices of specific products and services sold through the on-line distribution channel are, as assumed, lower on average than the brick-and-mortar retailers and if there is less 'price dispersion' -defined as the distribution of prices (such as range and standard deviation) of an item with the same measured characteristics across sellers of the item at a given point in time (Pan, Ratchford, & Shankar, 2004) -compared to that which characterizes traditional retailers. Most of this research compared the prices of fairly homogeneous products, such as books, video and music CDs and software (Brynijolfsson & Smith, 2000;Lee & Gosain, 2000;Friberg, Ganslandt, & Sandström, 2000), car sales services (Morton, Zettelmeyer, & Silva-Risso, 2001;Zettelmeijer, Morton, & Silva-Risso, 2006) and life insurance (Brown & Goolsbee, 2002), highlighted in line with the theoretical assumptions that the prices charged on average through the on-line distribution channel are lower than those adopted by the bricks-and-mortar retailers. Some studies, still concerning products such as books, CDs and software (Sabate, Cañabate, Cobo, & García, 2009;Bailey, 1998;Clay, Krishnan, Wolff, & Fernandes, 2002;Ancarani & Shankar, 2004), have instead found that on-line prices on average are higher or are at least at the same level as those that are practiced by physical stores. In this regard, some scholars (Pan, Ratchford, & Shankar, 2004;Li & Tang, 2011) reported that the results of this second group of research, that were not in line with the theoretical hypotheses, may have been conditioned by the not complete maturity of the markets analyzed or the different degree of homogeneity of the products examined.
The results shown, even if not always consistent, mainly confirm the greater price efficiency of e-commerce compared to the physical distribution channel.
Further potential effects of the spread of Internet technologies on the industry structure have concerned the impact of e-commerce on the barriers to entry and the consequent effects on the level of competition and profitability of the markets. In this regard, as observed (Goldmanis, Hortacsu, Syverson, & Emre, 2010, p. 674), "while there is an empirical literature investigating the advent and diffusion of e-commerce on prices, little has been done regarding the market structure", especially regarding the number or type of competitors that operate in the industry and the change of their market shares.
Taking this in to account, Porter (2001), by analyzing the Internet influences on industry structure, has hypothesized that the diffusion of web technologies should favor a reduction of the entry barriers, facilitating the arrival of newcomer firms, with a potential negative impact on the level of concentration and the profit margins in the sector.
The studies that have dealt with these issues in a broad sense, however, have shown different results in relation to the type of industries studied and the parameters used to measure the variation of industrial competition. For example, research has shown that both the barriers to entry and the entry of a fairly large number of new companies have been verified in some sectors in which is common the use of Internet technologies and e-commerce (Gropp & Kok, 2017;Bakos et al., 2005), causing a general reduction in sales concentration levels and average profits, in line with Porter's hypotheses.
Other studies (Wang & Zhang, 2015;Goldmanis et al., 2010), instead, have shown how the Internet technologies have favored, in specific sectors, industry consolidation processes with growth effects both in terms of industry concentration ratios and profit margins. In this regard Wang and Zhang (2015, p. 79) point out that their research carried out in certain types of sectors (manufacturing, wholesale, retail and services) showed results that were "contrary to the widely held beliefs they Internet increases industry competition". These authors report that the results of their investigations support the winner-take-all-structure of the Internet economy proposed by Frank and Cook (1996), based on the hypothesis that the trends of social and technological change in the modern economy could favor, especially in the web markets where the network effects and customer-to-customer communication are central for business strategy, the statement that few win the competition.
can be affected by these different features in relation to their different structural characteristics. This makes it important to study the dynamics underlying the changes induced by the spread of Internet technologies and of e-commerce, also because, as observed (Wang & Zhang, 2015, p. 80), "the effect of the Internet on industry competition has been widely discussed, but no empirical evidence based on overall industry change is available". This is also true for the gambling industry. Researches that have examined the socio-economic consequences of the spread of on-line gambling have done so mainly by focusing on specific issues. For example, some studies have focused their attention on the examination of regulatory frameworks in the various countries, to help public institutions in the implementation of gambling policies and companies to formulate appropriate on-line gambling responses (Kairouz, Monson, & Arsenault, 2018;Ansalone & Cestari, 2013;Mataluni, 2013;Pandimiglio & Spallone, 2012;Gainsbury & Wood, 2011;Coryn, Fijnaut, & Littler, 2008;Rose, 2006;Eadington, 2004;Sbordoni, 2010). A series of research works in the economic-managerial field that were carried out, on the other hand, has deepened, under different aspects, the impact of Internet gambling on consumer behavior and on marketing strategies (Calvosa, 2016;Gainsbury et al., 2015;Ozuem & Prasad, 2015;Wiebe, 2008;Wood, Williams, & Lawton, 2007;Jolley, Mizerski, & Olaru, 2006;Woolley, 2003;Brindley, 1999). An extensive literature, moreover, has focused on the study of the social impact and the risks associated with the diffusion of Internet gambling (amongs others: Chóliz, 2016;Gainsbury, Parke, & Suhonen, 2013;Yani-de-Soriano, Javed, & Yousafzai, 2012;Griffiths, Wood, & Parke, 2009;Griffiths & Parke, 2002;Griffiths, 1999). Even the research that has analyzed in a broad sense the major economic trends and issues associated with Internet gambling (Gainsbury, 2012;Williams et al., 2012;Pilling & Bartlett, 2012;Gandolfo & De Bonis, 2011;, did not systematically investigate how the total of the structural changes in the sector induced by e-commerce is impacting on industry competition.

Aims of the Study and Methodology
As described in the introduction, the general object of this study is to analyze the influence of e-commerce in changing industry structure and competition in the Italian regulated sports betting market. In keeping with the aspects discussed above, this object has been articulated into some specific aims presented as follows: To analyze the influence of the legalization of Internet gambling on market size in terms of sales and on the consumer behavior in the Italian sports betting market; To analyze the influence of the legalization of Internet gambling on the barriers to entry and the access of new gambling operators in the Italian sports betting market; To analyze the influence of the legalization of Internet gambling on the industry concentration ratio in the Italian sports betting market; To measure how, in the Italian sports betting market, the average prices have changed over time after the legalization of Internet gambling; To measure how, in the Italian sports betting market, the industry average profit margins have changed over time after the legalization of Internet gambling.
From a methodological point of view, firstly the information from a series of secondary sources (academic journals, market research, specialized reviews, gambling press agencies, Italian Ministry of Economy and Finance, Istat -the Italian National Institute for Statistics -, Censis -Center of Study in Social Investiments) was used in order to examine the main changes that have affected the sports betting industry in Italy. In particular, the official market data provided by the Agency of Customs and Monopoly and by the 'Journalistic agency on the gambling market' (Agimeg) have been collected and processed for the years between 2006 and 2017, thus carrying out an analysis of a longitudinal type on the investigated aspects.
Secondly, the data and information collected through specific empirical investigations were used. Specifically: 1. in order to deepen the study of the business models adopted by the companies operating in the Italian regulated sports betting market after the legalization of Internet gambling, an in-depth study of the competitive strategies was carried out of companies that, in terms of amount wagered, represents more than 90 percent of the sports betting market in Italy in 2017. For each of the companies examined it was analyzed: 1) the information reported on the company sites; 2) official data per operator (type of gambling concession, market shares, etc.) provided by the Agency of Customs and Monopoly and by Agimeg; 3) data coming from a series of secondary sources (specialized magazines, market research, etc.); empirical investigation was carried out on a sample of Italian consumers. The investigation was realised through the administration of a questionnaire addressed to the universe of clients who make sports bets on legal gambling websites in Italy. The questionnaire was administered through the CAWI method, during an 8-month period (from 30 August 2014 to 30 April 2015). At the end of the survey period the questionnaires compiled correctly numbered 263.

The Birth and Development of the Italian Regulated on-Line Sports Betting Industry
The use of the Internet as a gambling distribution channel has developed in Italy since the 90s, when different unauthorized foreign gambling operators entered the Italian gambling market through various web sites dedicated to on-line gambling. As noted (Mataluni, 2013, pp. 131-132), in deed, at the beginning of the new millennium "to stringent regulations dictated for physical gambling was opposed a total liberalization, due to the absence of regulation, in the on-line sector. [...] Many foreign operators have come to the Italian regulated market and have managed to enter through a window to the on-line world, thus accessing a national market that otherwise would have been complicated if not impossible to reach". The possibility of providing bets via the Internet across national borders had therefore contributed to the development of an unauthorized cross-border market, thanks to the tolerance of the state authorities and the lack of effective application of existing regulatory frameworks (Ansalone & Cestari, 2013).
To remedy the development of an uncontrolled market, in 2002 the Italian legislators approved the rules that experimentally launched Internet gambling (Sbordoni, 2010). In 2006 a new disciplines were issued for the provision of on-line gambling, thus establishing the ban on on-line cross-border sales by gambling operators without public authorization. This also caused the obscuring of numerous foreign gambling websites, which in many cases had initiated forms of litigation for the violation of the principles of the European Common Market (Bonanni, 2008). The Bersani Decree of 2006 intervened to solve many of the problems of coordination between the EU and national Italian law in the field of on-line gambling. This decree, aimed at "countering the spread of irregular and illegal gaming, tax evasion and avoidance in the the gambling industry, as well as ensuring the protection of the gambler", represented a turning point that helped to create a regulated gambling industry among the most developed and consolidated in the world.
By limiting analysis to the rules that have affected the sports betting industry, it is firstly possible to point out that the decree in question provides for the issuing of a call for tenders, for the allocation of new gambling licenses. These were joined to those held by betting agencies, which were until then authorized exclusively to the intermediation of sports betting in Italy. In particular, operators assigned the new licenses from the Autonomous Body Administering State Monopolies (now Agency of Customs and Monopoly), and were authorized to sell the games through two new types of stores with distinct characteristics, the 'betting shops' and the 'corners', which allowed the development of a capillary land based network. In addition, the Bersani Decree had organically regulated Internet gambling, defining a new authorization model that has opened the Italian legal market to foreign gambling operators that have in their own countries a license that enables them to exercise their legal betting activities. Many of them, as detailed below, thanks to the release of a specific gambling license, have exploited the potential of the web to replicate their offer of betting services, already proposed in other countries, in the Italian gambling regulated market (Mataluni, 2013).

Internet Gambling and Industry Structure: The Influence on Market Sales and on the Consumer Behavior In the Italian Sports Betting Market
In line with the aims of this study, the influence of the legalization of Internet gambling on market size in terms of sales and on consumer behavior in the Italian sports betting market was first analyzed.
To introduce the analysis, it is useful to provide an overview of the growth of the total amount wagered (Note 1) in the sports betting sector in Italy in the period from 2006 (the year of issue of the Bersani Decree) to 2017.

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Foreign companies, on the other hand, have actually been able to enter the Italian regulated market through the on-line distribution channel. Unlike Italian companies, these organizations operate in several geographical areas, and are mainly focused on the sports betting market. They have exploited the effects of the regulated opening process of the market and the potential of the web to replicate in the Italian gambling market their range of gambling products already provided in other countries. More specifically, it is possible to identify two different business approaches adopted by these foreign companies.
The first approach is that that is used by Internet pure players. For these companies, the process of commercial disintermediation, facilitated by the Internet gambling liberalization, has allowed them to overcome the difficult barriers blocking entry into the Italian sector, consisting of the huge investments to be sustained in managing a physical distribution network which is necessary to reach a large number of consumers. In 2017, the information processed by us from the market data made it possible to highlight that the foreign Internet pure players (among the main ones: Bet365, William Hill, Bwin) controlled about 30 percent of the total amount wagered in the Italian sports betting industry. If analysis focuses only on the Internet sports betting segment, the empirical investigation carried out also shows that these companies control, in 2017, more than half of on-line amounts wagered.
A second business approach adopted by foreign companies is that in which, in addition to providing gambling services via the Internet, they have created a physical distribution network in Italy, thus adopting a multi-channel approach. This approach is used by two groups of companies that have chosen different entry strategies.
A first group -which comprises Eurobet and Intralot, for example -includes some gambling operators that, since the early 2000s, have operated in the Italian market through websites dedicated to sports betting, exploiting the absence of a specific regulation for Internet Gambling. These companies have requested and obtained, from 2006, legal gambling licenses issued by the Autonomous Body Administering State Monopolies following the process of opening up to foreign companies realized with the Bersani Decree, deciding therefore to subject their activities to Italian regulations and taxation. They therefore have taken advantage of the customer base already acquired in the on-line sector to propose their gambling offers both through authorized websites, and through the opening of a network of betting shops, thus adopting a multi-channelled approach, whereby sales tend to be distributed between the physical and digital distribution channels.
A second group of foreign companies, on the other hand, entered the Italian regulated market in 2015, after having redressed its position with respect to the legislation dictated by the Agency of Customs and Monopoly. We refer to foreign companies that managed "Data Transmission Centers". These centers are commercial establishments that have been operating for years in the sports betting market in Italy, taking advantage of some regulatory provisions in Europe. They acted as Internet points, transmitting on-line to foreign companies the sports betting proposals received from Italian customers, despite the Italian legislation that did not allow them to carry out brokerage activities as they lack the necessary authorization required by Italian law (Mataluni, 2013). Most of these centers have legalized their position since 2015, adhering to an amnesty that has included their activities within the system of authorization of the Agency of Customs and Monopoly, with the related effects of a fiscal nature on sales. This group includes operators such as Sks 365, GoldBet and Betaland who, after legalizing their position, now collect sports betting either through an extended retail network or via authorized websites.
The multichannel foreign companies, both of the first and of the second group, have almost quadrupled the weight of their total amounts wagered in the Italian regulated market, having grown from just over 10 percent in 2009 to around 38 percent in 2017.
Turning to the analysis of the other two legal types of gambling in the Italian sports betting market, which together represent approximately one fifth of the total amounts wagered, it is possible to highlight the very important role played by foreign companies.
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Conclu
The analy structure also poss popular v the oppos thus favo The analysis also revealed that the complete legalization of on-line betting has led to a lowering of barriers to enter into the Italian regulated market, facilitating the entry of numerous foreign gambling operators. These companies, leveraging the Internet sales channel, have been able to replicate the gambling services already provided in other countries, without having to sustain the huge investments necessary for the management of a widespread network of sales points, which were until then necessary to sell bets to a large number of consumers. In fact, the processing of market data has revealed that in recent years the foreign gambling operators, especially those specialized in the on-line distribution, have rapidly eroded the sales of Italian multichannel operatorswho for years have controlled almost exclusively the betting market -coming to control more than two thirds of the gambling volume in the sports betting industry in Italy.
The entry of new foreign gambling operators, connected to the development of on-line gambling, has affected the level of competition in the sector, as it emerges from the measurements of the data, for the period 2007-2017, of the industry concentration ratio. In fact, data processing showed a significant reduction, particularly in recent years, in the concentration of sales of the sports betting market in Italy. There has therefore been a shift in the strong oligopolistic structure that for decades has characterized the Italian betting industry. This change that, in terms of trends, will be further supported by an ever-increasing international openness of the Italian on-line betting market.
The transformations described also suggest an increase in the sector's competition, from the point of view of price. The impact of e-commerce on price levels of sports betting in Italy was therefore analyzed to also verify if, in line with theoretical hypothesis, the introduction of on-line betting had lead to a reduction in average prices charged from gambling operators. The analysis showed that the annual take-out rate for sports betting -an indicator of the price of sports bets -decreased from about 26 percent in 2006, to just over 13 percent in 2017, describing an average percentage decrease in prices of almost 50 percent. This decrease is linked to an average percentage price of on-line sports bets that has remained consistently lower by about 40 percentage points in relative terms, compared with the average price of sports bets sold through physical betting shops.
Finally, the increase of pricing competition also impacted on profit margins of companies operating in the sector. The data processed allowed us to show, in this regard, that the average profit margin for every euro bet decreased in a decade by about a third, from 15 percent in 2006, to 10 percent in 2016.
In conclusion, this research work as a whole has made it possible to highlight that the development of Internet technologies and of e-commerce has on the one hand had a positive influence on the growth of market sales; on the other hand, it has impacted on a series of structural factors in the sector -entry barriers, number of competitors, the geographical opening of the market, level of pricing, average profit margins -in such a way as to determine an increase in industry competition. In particular, the use by foreign companies of the electronic distribution channel as a 'mode of entry' into different geographical markets is causing the development of competition that goes beyond national borders. The data in terms of trends leads to the hypothesis that in the next few years, in the sports betting industry, more and more leadership positions will taken on by large Internet pure players, which will act transversally in different territorial contexts.