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Spatial Competition and Cross-Border Shopping: Evidence from State Lotteries

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  • Brian Knight
  • Nathan Schiff

Abstract

This paper investigates competition between jurisdictions in the context of cross-border shopping for state lottery tickets. Our theoretical model, in which consumers consider both travel costs and lottery payoffs, predicts that per-resident sales should be more responsive to prices in small states with densely populated borders. Using weekly sales data from US lotteries and drawing identification from the rollover feature of jackpots, we estimate this responsiveness and find large effects that vary significantly across states. Using these estimates, we show that competitive pressures from neighboring states may lead to substantially lower optimal prices. (JEL H27, H71, H73, R51)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 4 (November)
Pages: 199-229

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:4:p:199-229

Note: DOI: 10.1257/pol.4.4.199
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  1. Philip J. Cook & Charles T. Clotfelter, 1991. "The Peculiar Scale Economies of Lotto," NBER Working Papers 3766, National Bureau of Economic Research, Inc.
  2. Tosun, Mehmet Serkan & Skidmore, Mark, 2004. "Interstate Competition and State Lottery Revenues," National Tax Journal, National Tax Association, vol. 57(2), pages 163-78, June.
  3. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
  4. Friberg, Richard & Asplund, Marcus & Wilander, Fredrik, 2005. "Demand and Distance: Evidence on Cross-Border Shopping," Working Paper Series in Economics and Finance 587, Stockholm School of Economics.
  5. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  6. Melissa S. Kearney, 2005. "The Economic Winners and Losers of Legalized Gambling," NBER Working Papers 11234, National Bureau of Economic Research, Inc.
  7. Mark Edward Stover, 1990. "Contiguous state lotteries: Substitutes or complements?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(4), pages 565-568.
  8. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  9. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 203-30, June.
  10. Lovenheim, Michael F., 2008. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," National Tax Journal, National Tax Association, vol. 61(1), pages 7-33, March.
  11. Kearney, Melissa Schettini, 2005. "The Economic Winners and Losers of Legalized Gambling," National Tax Journal, National Tax Association, vol. 58(2), pages 281-302, June.
  12. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  13. Doyle Jr., Joseph J. & Samphantharak, Krislert, 2008. "$2.00 Gas! Studying the effects of a gas tax moratorium," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 869-884, April.
  14. Oster, Emily, 2004. "Are All Lotteries Regressive? Evidence from the Powerball," National Tax Journal, National Tax Association, vol. 57(2), pages 179-87, June.
  15. Melissa Schettini Kearney, 2002. "State Lotteries and Consumer Behavior," NBER Working Papers 9330, National Bureau of Economic Research, Inc.
  16. Brown, Ryan P. & Rork, Jonathan C., 2005. "Copycat gaming: A spatial analysis of state lottery structure," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 795-807, November.
  17. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  18. Clotfelter, Charles T & Cook, Philip J, 1990. "On the Economics of State Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 105-19, Fall.
  19. Garrett, Thomas A. & Marsh, Thomas L., 2002. "The revenue impacts of cross-border lottery shopping in the presence of spatial autocorrelation," Regional Science and Urban Economics, Elsevier, vol. 32(4), pages 501-519, July.
  20. Jonathan Guryan & Melissa S. Kearney, 2008. "Gambling at Lucky Stores: Empirical Evidence from State Lottery Sales," American Economic Review, American Economic Association, vol. 98(1), pages 458-73, March.
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Cited by:
  1. Brian G. Knight, 2011. "State Gun Policy and Cross-State Externalities: Evidence from Crime Gun Tracing," NBER Working Papers 17469, National Bureau of Economic Research, Inc.

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