The Market for Sweekstakes
AbstractThis 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 payout ratio respectively. It can be profitable to offer each type of sweepstake when there are 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 behavior. Moreover, for the variable-prize sweepstake, the supplier will generally find it profitable to combine sweepstakes from two populations, o?ering a single sweepstake to the combined population. This corroborates the recent spate of mergers of smaller state lotteries into larger ones.
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Bibliographic InfoPaper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 04.4.
Length: 29 pages
Date of creation: Oct 2004
Date of revision:
Sweepstakes; risk aversion; longshot preference behavior; weighted utility model; Nash equilibrium;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-03 (All new papers)
- NEP-MIC-2005-04-03 (Microeconomics)
- NEP-SEA-2005-04-03 (South East Asia)
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