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The Market for Sweepstakes

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  • Soo Hong Chew
  • Guofu Tan

Abstract

This paper studies the market for monopolistically supplied sweepstakes. We derive equilibrium demands for fixed-prize and variable-prize sweepstakes and determine the profit-maximizing prize level and pay-out ratio respectively. It can be profitable to offer each type of sweepstake when there is a large enough number of weighted utility consumers who have constant absolute risk attitudes, are strictly averse to small as well as symmetric risks, and display longshot preference behaviour. Moreover, for the variable-prize sweepstake, the supplier will generally find it profitable to combine sweepstakes targeting two smaller populations, and offer a single sweepstake to the combined population. This implication is corroborated by the recent spate of mergers of smaller state lotteries into larger ones. Copyright 2005, Wiley-Blackwell.

Suggested Citation

  • Soo Hong Chew & Guofu Tan, 2005. "The Market for Sweepstakes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 1009-1029.
    • Handle: RePEc:oup:restud:v:72:y:2005:i:4:p:1009-1029
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    File URL: http://hdl.handle.net/10.1111/0034-6527.00359
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    Cited by:

    1. Ailawadi, Kusum L. & Gedenk, Karen & Langer, Tobias & Ma, Yu & Neslin, Scott A., 2014. "Consumer response to uncertain promotions: An empirical analysis of conditional rebates," International Journal of Research in Marketing, Elsevier, vol. 31(1), pages 94-106.
    2. Yukihiro Miwa & Makoto Morisada & Wirawan D. Dahana, 2017. "Investigating the Impacts of Individual Traits and Product Characteristics on Customer Evaluation of Sweepstakes," International Journal of Marketing Studies, Canadian Center of Science and Education, vol. 9(5), pages 1-16, October.
    3. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.
    4. Songfa Zhong & Salomon Israel & Hong Xue & Richard P Ebstein & Soo Hong Chew, 2009. "Monoamine Oxidase A Gene (MAOA) Associated with Attitude Towards Longshot Risks," PLOS ONE, Public Library of Science, vol. 4(12), pages 1-4, December.
    5. Soo Hong Chew & Haoming Liu & Alberto Salvo, 2021. "Adversity-hope hypothesis: Air pollution raises lottery demand in China," Journal of Risk and Uncertainty, Springer, vol. 62(3), pages 247-280, June.

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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