Spatial Competition and Cross-border Shopping: Evidence from State Lotteries
AbstractThis 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.
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Date of creation: Jan 2010
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Other versions of this item:
- Brian Knight & Nathan Schiff, 2012. "Spatial Competition and Cross-Border Shopping: Evidence from State Lotteries," American Economic Journal: Economic Policy, American Economic Association, vol. 4(4), pages 199-229, November.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-20 (All new papers)
- NEP-COM-2010-02-20 (Industrial Competition)
- NEP-PBE-2010-02-20 (Public Economics)
- NEP-URE-2010-02-20 (Urban & Real Estate Economics)
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