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Spatial competition and cross-border shopping

Author

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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. We first develop a simple theoretical model in which consumers choose between state lotteries and face a trade-off between travel costs and the price of a fair gamble, which is declining in the size of the jackpot and the odds of winning. Given this trade-off, the model predicts that per-resident sales should be more responsive to prices in small states with densely populated borders, relative to large states with sparsely populated borders. Our empirical analysis focuses on the multi-state games of Powerball and Mega Millions, and the identification strategy is based upon high-frequency variation in prices due to the rollover feature of lottery jackpots. The empirical results support the predictions of the model. The magnitude of these effects is large, suggesting that states do face competitive pressures from neighboring lotteries, but the effects vary significantly across states.

Suggested Citation

  • Brian Knight & Nathan Schiff, 2010. "Spatial competition and cross-border shopping," New England Public Policy Center Working Paper 10-1, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcw:10-1
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    Cited by:

    1. Lee, Hanbin & Sexton, Richard J. & Sumner, Daniel A., 2021. "Economics of Mandates on Farm Practices: Lessons from California’s Proposition 12 Regulations on Pork Sold in California," 2021 Annual Meeting, August 1-3, Austin, Texas 313920, Agricultural and Applied Economics Association.
    2. Luke P. Rodgers, 2020. "Don’t Tax My Dreams: The Lottery Sales Response to Gambling Tax Changes," Public Finance Review, , vol. 48(5), pages 627-649, September.
    3. Head, Keith & , & Tappata, Mariano, 2012. "Consumer Arbitrage Across a Porous Border," CEPR Discussion Papers 8730, C.E.P.R. Discussion Papers.
    4. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2014. "The Inside and Outside Revenue Impact of Regional Gambling Taxes in Spain," Growth and Change, Wiley Blackwell, vol. 45(1), pages 79-97, March.
    5. Marcelo Castro & Enlinson Mattos, 2021. "Measuring Fiscal Spillovers in Brazilian Municipalities," Public Finance Review, , vol. 49(2), pages 221-261, March.

    More about this item

    Keywords

    Gambling industry; Consumer behavior;

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