Today’s Sun has an interesting piece about how different corporate cultures work on the Strip:
As it turns out, the industry’s giants, MGM Mirage and Harrah’s Entertainment, have evolved into different animals at the top of their respective food chains.
Customers will be familiar with some of these differences.
While most MGM Mirage resorts are located on the Strip, Harrah’s has a national chain of mid-market casinos linked by the Total Rewards loyalty card.
A few months ago, MGM Mirage executives told investors they haven’t fully capitalized on technology-based marketing and the company’s loyalty card program. By contrast, Harrah’s in 2000 launched Total Rewards and has continued to improve its technological marvel.
Some differences go undetected by the majority of customers.
MGM Mirage executives are proud that their Strip resorts compete fiercely with one another for business. The fight for customers is especially stiff among similarly situated properties, such as, say, the neighboring Mirage and Treasure Island. Once an MGM customer is ensconced at a company casino, management also does its best to keep its guest’s dollars at the property.
Encouraging in-house competition keeps management on its toes and boosts results, executives say.
Yet Harrah’s says it has a different approach. Most of the company’s profit comes from customers who are members of the Total Rewards program, which allows gamblers to choose where they redeem their rewards card credits. A Chicago area gambler, for example, could redeem her credits by dining at the Flamingo and staying at Caesars Palace.
Hmmm. The first thing I thought was, “If someone is staying at Caesars, why on earth would they want to eat at the Flamingo?” But I guess it’s just a hypothetical, like “If a Wynn guest wants to skip the Country Club Grill, take a cab and hit the Sahara buffet after playing 18 holes.”
But seriously, there is a fundamental issue here that I will leave to the economists to dissect: central planning versus market economics. Harrah’s is using a classic argument for central planning–experts will be able to better coordinate resources and get better results. Of course, we know how well command economies worked in the Soviet bloc.
MGM Mirage, on the other hand, seems to encouraging a market approach among its casinos: each of them competes for players by offering the best possible package to them. This is the approach that gave us the Las Vegas Strip: before you had such a small ownership pool, you just had individual casinos trying to out-do each other.
While the command system may be more “rational,” in the long run it’s not as efficient, because individual property managers don’t have any incentive to exceed expectations. Why should managers at the Flamingo ask for millions of dollars for upgrades, when they know Caesars will get all the high-end customers. Those on the bottom have absolutely no reason to try to spruce up their places, since they’ll be getting everyone else’s crumbs no matter what they do. By the same token, those at the top don’t have to face internal competition–if players are committed to spending their comps on a Vegas vacation, they don’t have much of a choice about where to go.
I knew that, eventually, reading Hayek would give me some kind of insight into casinos. Go ahead and read “The Use of Knowledge in Society” if you want to see what inspired me.
