Player exclusion and sub-market substitution: synthetic DiD evidence from Germany’s gambling machine market

Abstract This study examines the effects of the introduction of an exclusion program on the distribution of gambling machines between gambling halls and gastronomic establishments. We use the German federal state of Hesse as a case study. Hesse introduced an exclusion program in 2014 for gambling halls. Since gastronomic establishments with gambling machines were not covered by the program, we hypothesize a distributional shift to the less regulated sub-market. Using a synthetic difference-in-differences approach, we analyze municipal-level panel data for the period 2002 to 2020. Our results show a clear shift. The number of machines in gambling halls fell by 8.17 per municipality on average while it increased by 11.11 in gastronomic establishments. This displacement poses a challenge for regulation. Besides the nationwide exclusion program introduced in 2021, we recommend an EU-wide exclusion program to strengthen player protection and channeling, especially in countries like Germany with extensive land borders. Future research should examine how this displacement affects vulnerable groups.