Why there will never be a rake war (longwinded)

[Greg J]

There have been many posters constantly discuss how market forces will force rake down. The logic is simple, and based on the idea that fair and open competition will lead to a lowering of prices. It’s a common assumption in economics, and it is really a logical conclusion. A lot of posters I highly respect have this view. But I think they are dead wrong. In fact, I think that we can expect to see the trend of higher rake that we see on sites like Pokeroom and Pacific to continue. There are a few dynamics here that lead me to this conclusion, and they violate the assumptions of the standard argument that competition leads to lower prices.

1) The “consumer,” in this case the poker player, is very ignorant. This does not mean you, faithful 2+2 poster, but the average customer. Interesting anecdote: every time I talk to my brother-in-law about poker, I have to re-explain what rake is! The recreational player does not think about rake like the thinking serious player does. He/she does not consider the effect it has on winning or losing. I think many of you would be surprised to learn that some people don’t even know what rake is! Most that do have no clue of the implications. “Oh that’s only 2 dollars out of a $50 pot. No big deal at all!” When rake is increased, most players don’t notice.

2) It is not in the interests of the sites to inform the customer about rake in order to get their business. Internet poker is seen as “iffy” by many American players already. If they start making rake salient, then they will probably be less likely to deposit anywhere. No poker site is likely to get business on the argument “our rake is lower!” except of course from poker geeks like us. (And no offense guys, but I don’t want you at my table!)

3) The players that do notice a rake hike who will be less likely to play the site are typically better than average players. This is not critically important, but it does factor in, and makes raising the rake that much more profitable. A winning player is less prone to making multiple deposits. The recreational players (“fish”) are more prone to pass money around between each other, ultimately making it a –EV game for everyone (assuming no sharks) since over time, the house takes enough of a cut to make them all losers. You see, the sites understand that raising the rake will make some players leave, but these are not the most profitable customers. Even the high volume players who play rake are good but suboptimal customers. They pay lots of rake, but they also remove a lot of money from the system that would otherwise go back to the house in the form of recreational players passing it around in the form of raked pots. If they loose these high volume sharks, it’s not the end of the world.

This logic has an interesting implication: there are going to be several high rake sites with relatively soft games, and some low rake sites where the better more informed poker players will go. Pacific is known as having both the highest rake and the worst players. I think over time Pokeroom will start to get softer and softer because of this dynamic (especially if they start offering fewer bonuses). In the meantime, we will either be breaking ranks and paying higher rake to play where the less serious recreational gambling poker player is, or we will be TAGing it up against each other eeking out meager winrates and worshiping our rakeback deals (and that is the best of us!).


However, I don’t expect this to be a stable equilibrium, it’s just something we will be likely to see in the relative short term. Eventually, I think it will be in the interests of all poker sites to steadily increase rake. That’s right, rake will keep getting higher and higher everywhere.

A lot of poster I like and respect repeatedly come to the opposite conclusions, that eventually good old economics will kick in and the sites will have a rake war. I’m sorry, but as much as I would like for this to happen, I don’t see it occurring. The conclusions of lower prices resulting from competition as based on certain assumptions about the consumer as being highly informed and an optimal decision maker. Neither is the case here. There will be no rake war. Instead there will be a near universal raising of the rake.

Of course, I could have made a mistake somewhere in this post, and am welcome to criticism regarding this argument and its conclusion. There is nothing I would like more than to be proven wrong here!