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Costs, biases and betting markets: new evidence


Author Info

  • Michael A. Smith
  • David Paton
  • Leighton Vaughan-Williams


In recent years, person-to-person wagering on Internet ‘betting exchanges’ (sometimes known as ‘matched betting’) has become an increasingly important medium for betting on horse racing, sports and special events. Established gambling operators have argued that betting exchanges should not be allowed on the grounds that they represent unfair competition. In this paper, we argue that, in fact, betting exchanges have brought about reductions in traditional market biases and significant efficiency gains by lowering transaction costs for consumers. As such, the growth of exchange betting should be viewed as a welcome and innovatory phenomenon whereby allocative efficiency in the gambling market is improved. We test this hypothesis using data on UK horse racing from betting exchanges and from traditional betting media. We find a monotonic negative relationship between transaction costs and market efficiency. Further, in contrast to traditional betting media, we find that betting exchanges exhibit both weak and strong form market efficiency.

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Bibliographic Info

Paper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2004/5.

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Date of creation: Sep 2004
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Handle: RePEc:nbs:wpaper:2004/5

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Related research

Keywords: matched betting; betting exchanges; market efficiency; favourite-longshot bias.;

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Cited by:
  1. Maschke, Mario & Schmidt, Ulrich, 2010. "Das Wettmonopol in Deutschland: Status Quo und Reformansätze," Kiel Policy Brief 18, Kiel Institute for the World Economy (IfW).


This item is featured on the following reading lists or Wikipedia pages:
  1. Wikipedia:Articles for deletion/Log/2010 February 21 in Wikipedia (English)
  2. Wikipedia:Articles for deletion/Matched betting in Wikipedia (English)


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